Reverse Mortgages for Married Couples & Non-Borrowing Spouses

Eligible vs. Ineligible Non-Borrowing Spouse: Where You Stand

The line is drawn at the closing table, not years later. HUD's HECM regulation, 24 C.F.R. § 206.55(c)(1), says a non-borrowing spouse is "eligible" only if he or she:

• Was married at closing and stayed married. The person must have been the borrower's spouse when the loan closed and remained the spouse for the rest of the borrower's lifetime.
• Was named in the loan. The spouse must have been disclosed to the lender at origination and named as an Eligible Non-Borrowing Spouse in the mortgage and loan documents.
• Lives in the home. The spouse must have occupied the home as a principal residence, meaning the place a person lives for most of the year, and must keep doing so.
• Meets any other HUD requirements. HUD may add requirements by Federal Register notice.

An ineligible non-borrowing spouse is one who did not meet these conditions at closing, such as a person who married the borrower afterward. The regulation adds two firm points. A spouse who was ineligible at origination "is not subsequently eligible" when the borrowing spouse dies or moves out. And an eligible spouse becomes ineligible if any of these conditions stops being met.

Loans made before the current rules

These protections are fairly recent. According to the CFPB, the current eligibility rules apply to HECMs with FHA case numbers assigned on or after August 4, 2014. The same CFPB page notes that a same-sex couple who could not legally marry when the loan was made must show they were legally married at the time of the borrower's death.

For an older loan, the CFPB says only that whether a non-borrowing spouse can stay without paying off the loan depends "on when the loan was taken out." The sources this page relies on do not set out the separate process that applies to loans with earlier case numbers. A family with an older loan can ask the servicer, a HUD-approved housing counseling agency or an attorney which rules apply to that particular loan, using the FHA case number in the closing documents.

The Deferral Period: How an Eligible Non-Borrowing Spouse Can Stay in the Home

For a surviving spouse, the question is whether the house can stay home. The Deferral Period is HUD's answer. It is a stretch of time during which the loan does not have to be repaid, even though the borrowing spouse has died, as long as the eligible spouse keeps meeting the rules.

Under 24 C.F.R. § 206.55(a), if the last surviving borrower dies before an eligible non-borrowing spouse, the loan's due date is deferred "for as long as" that spouse continues to meet the conditions described above and the further requirements in that section. Under 24 C.F.R. § 206.27(c)(3), the deferral lasts until the death of the last eligible non-borrowing spouse, or until the requirements stop being met and are not cured.

During the deferral, the duties tied to the home stay in place. These include living there as a principal residence, and the mortgage's terms on property charges such as taxes and insurance and on upkeep. The full list is in HUD's HECM regulations, and a counselor can go through it line by line.

Two points are easy to miss. The loan is not being repaid during the deferral, so interest and fees keep being added and the balance keeps growing. And, as the CFPB states, "An Eligible Non-Borrowing Spouse will not get any money from the reverse mortgage." The deferral protects a place to live. It does not provide new funds.

HUD's current program guidance is on its HECM program page.

The deferral protects a place to live, but it does not put money in a surviving spouse's hands.

If Your Spouse Is Ineligible: What That Means for the Home

This is the harder situation. A spouse who has lived in the house for years may learn, while grieving, that the loan does not give them the right to stay without repaying it.

An ineligible non-borrowing spouse does not qualify for the Deferral Period. When the last borrower dies, the loan generally becomes "due and payable." That means the full balance must be repaid: the money borrowed plus the interest and fees added over the years.

Repayment still leaves real choices. According to the CFPB, a non-borrowing spouse "may stay in the home if they pay off the loan," which can happen with savings or a new loan. Selling the home to repay the balance is the other usual path. Family members are given a period of time to arrange either one. The lender or servicer, meaning the company that manages the loan, explains the timing that applies.

The CFPB also notes that the process can be hard and suggests help from an attorney or a HUD-approved housing counseling agency. A surviving spouse facing broader money decisions after a loss may also find it useful to read about home equity options for a surviving spouse.

What Both Spouses Need to Understand Before Signing

These questions are most easily settled before anyone signs. Federal law builds in a pause for exactly that.

Under 12 U.S.C. § 1715z-20(d)(2)(B), the borrower must have "received adequate counseling" from an independent third party that is not associated with or paid by anyone who originates, services or funds the loan, or who sells annuities, investments, long-term care insurance or other financial products. By statute, the counselor discusses options other than a HECM, other home equity options such as property tax deferral, the financial effects of the loan, and that it "may have tax consequences, affect eligibility for assistance under Federal and State programs, and have an impact on the estate and heirs."

That session is where a couple can ask directly: Is my spouse eligible? Is my spouse named in the documents? What happens if I go into care? HUD's HECM Counselor Roster lists approved counselors, and HUD gives (800) 569-4287 as a number to call.

The non-borrowing spouse is named in the loan documents and may be asked to sign certain papers at closing. That naming is a condition of eligibility, so it matters.

Before closing, both spouses benefit from understanding three things:

• The balance grows. Interest and charges are added to the loan, so the amount owed rises over time.
• The duties continue. The home must be the principal residence of each borrower, and of any eligible non-borrowing spouse, at closing under 24 C.F.R. § 206.39. Borrowers must also pay property taxes and homeowners insurance and keep the home in good repair.
• The loan comes due. Repayment is triggered when the last borrower dies, sells or moves out, subject to any deferral for an eligible spouse.

The steps leading up to closing are described in more detail in reverse mortgage eligibility.

When the Loan Becomes Due: Triggering Events and the Repayment Process

Families often ask what, exactly, starts the clock. The federal statute, 12 U.S.C. § 1715z-20(j), says the homeowner's obligation is deferred "until the homeowner's death, the sale of the home, or the occurrence of other events specified in regulations," and it counts the spouse of a homeowner as a homeowner.

HUD's regulation, 24 C.F.R. § 206.27(c), makes the loan due when a borrower dies and the home is not the principal residence of at least one surviving borrower, unless a Deferral Period applies. It is also due when all title is conveyed and no borrower keeps title. With HUD's approval, it can also become due when:

• the home stops being a borrower's principal residence for reasons other than death, and no other borrower lives there;
• a borrower is away for more than 12 consecutive months because of physical or mental illness, and no other borrower lives there;
• the borrower does not provide for property charges; or
• another obligation under the mortgage is not performed.

The protection that limits what can be owed is called non-recourse. Under 12 U.S.C. § 1715z-20(d)(7), the homeowner is not liable for any gap between the loan balance and what the lender recovers from the home's net sale proceeds or insurance benefits. The Federal Trade Commission puts it this way: the borrower or the estate "can't owe more than the value of your home when the loan becomes due and the home is sold."

Heirs who want to keep the home after the borrower and any eligible spouse have died repay the full balance or 95 percent of the home's appraised value, whichever is less, according to the CFPB. Otherwise, the home is usually sold to repay the loan.

Documents that help answer these questions

Two papers make a conversation with a counselor or the servicer more precise. The first is the loan's closing documents, which show whether a spouse was named as an Eligible Non-Borrowing Spouse and carry the FHA case number. The second is the yearly statement the lender must send by January 31 under 12 U.S.C. § 1715z-20(e)(3), which shows the amount paid out, the interest added and the balance. How the loan works day to day is explained in how a reverse mortgage works.

Having the closing documents and the yearly statement on hand makes any conversation with a counselor or servicer much more concrete.