What do you do if you want to get a reverse mortgage and you or your spouse is eligible, but the other is too young? After all, all borrowers must be 62 years or older to qualify and it is common for a man to be 10-15 years older than his wife.
This can create some concerns, which are definitely justifiable. Let’s take a look at what the concerns are, and then attempt to give you a solution.
There is only one way to do a reverse mortgage in this case. Your spouse will need to be removed from the loan and will not be on title to the property any longer. The new loan will be in your name only, as well as the title to the home. This method works quite nicely, but there can be many concerns.
This is a concern for many reasons. We will just clear the air and let you know what we have seen, so it will be easier to understand.
If there is a lack of trust, you will have a hard time getting your spouse to agree to the idea of removing them from the title. There could be a fear of being left with nothing, since they will technically have no claim to the home after the loan is completed. In the event of your passing, the home will go to the rightful heirs, but the probate court may get to decide who they are. Certain ways of holding title guarantee the other person ownership when the other passes away. But now this can’t be done.
What if something happens to you and you need to go to a retirement home or you pass away? The loan is due and payable. Does your spouse have the ability to refinance or pay off the mortgage so they can keep the home?
Remember that your pensions and retirement may not pass on to your spouse, leaving them short of funds and the ability to qualify for a new loan.
The above are real concerns and should not be taken lightly. I have personally seen folks get kicked out of the home after the spouse passes away.
On the other hand, sometimes you have no choice. A reverse mortgage will solve a lot of financial problems. Sometimes it just makes sense to do it and there are good reasons to remove a spouse to qualify for a reverse mortgage. Let’s look at some ideas.
1. You’re in eminent danger of losing your home.
If you are facing foreclosure for back taxes or because you’re behind on your mortgage, it may be more important to risk the above as a way to provide protection for your livelihood. It is better to postpone the risks outlined above, rather than losing your home.
Even if a foreclosure is just weeks away, or if your credit is destroyed and you can’t qualify for a “regular” loan, a reverse mortgage could work. There are virtually no credit or income requirements to qualify. Just being old enough and having enough equity will qualify you.
2. Your home needs repairs that you can’t afford.
Sometimes the deferred maintenance starts tearing a home apart. If you need a new roof or your deck is falling down, and you just don’t have the funds to correct these problems, a reverse mortgage will allow you the funds you need to repair the problems without taking on more monthly payments that would come with a traditional line of credit.
Unlike most mortgages, which require you to have the repairs done prior to getting the loan, a reverse mortgage will allow you to do the repairs after the loan is closed. This is accomplished by doing an escrow holdback of the funds required to do the repairs.
Don’t let your home fall apart because you can’t afford the maintenance. There are options. You can use the money to pay for the repairs whether you do them or hire a contractor.
3. You’re just not able to survive on what you currently bring in.
If you can’t afford the heat or enough food or lights or any other thing we consider normal minimal standards, a reverse mortgage may be the right choice. Again, we get to is it worth the risk of your spouse not being on title, so you can live a healthy retirement?
Don’t set your standards too low. It is easy to get accustomed to a lower standard and think everything is alright.
4. Your spouse doesn’t want the home after you are gone.
Sometimes the home doesn’t belong to the spouse. For example, when the seniors are both on a second marriage and the estate should pass to the heirs of one party.
The spouse wants to move away. I have seen where the plan was for a spouse to move to be nearer other family after the borrower’s passing. They wish to relocate anyway, so not getting to keep the home isn’t a concern. Another scenario is where they just don’t want to live in the home after the other person is gone.
This is your call, but the following would be a reason to not remove the spouse from title.
Just to get more money.
The older you are, the more money that is available in a reverse mortgage. I have had clients want to remove the eligible spouse just to get more money that they did not need. This is different than if you need it to resolve pressing issues. If it is a true necessity, you do what you need to. If it is for excess or luxury, I would not do it.
There are certain precautions that should be taken to make sure you are not putting your spouse at any risk. Following these steps will be a huge advance towards that protection.
1. Life insurance
If you are able to get it, find a good term life policy that will pay your spouse upon your passing. This will guarantee them some money in case they are unable to refinance on their own.
There is a science to how much you need to properly protect your loved ones. Just knowing that you should get it is enough for now. The actual amount can be determined though a proper interview.
2. Take less money
You don’t have to take all the money that is available to you. If you don’t need it, leave it. This will make the payoff smaller and may be more able to afford the refinance, or they may qualify for the reverse mortgage when they are old enough.
If you have to take it all, like in a fixed rate reverse mortgage, put the money away and don’t spend it unless you need it. This money will come in handy if you leave your spouse with a mortgage to pay off.
3. Living trusts
Living trusts are a way to pass your estate on and guarantee who inherits the home. There is always a way to circumvent the system, but if done properly, you should be able to adequately protect the non-borrowing spouse.
Getting a reverse mortgage without your spouse on title can open up doors that were previously closed. But do it carefully, and take the aforementioned items into consideration. When done properly, you can minimize any risk and benefit greatly.