Can You Lose Your House With a Reverse Mortgage? A Plain-English Answer for San Diego Homeowners

If you're 62 or older and you've looked into a reverse mortgage, there's one question that has probably stopped you cold: "Can I lose my house?"

Prefer to watch? See the video here.

It's the question I hear more than any other, and it's a fair one. Your home is probably the biggest thing you own. It might be where you raised your kids. You deserve a straight answer.

Here it is. Yes, it is possible to lose a home with a reverse mortgage, but not in the way most people think. It almost always comes down to three things: paying your property taxes and insurance, living in the home, and keeping it in reasonable repair. You can understand all three, plan for them, and in most cases avoid trouble.

My goal isn't to talk you into a reverse mortgage. It's to help you and your family here in San Diego understand how it works, so you can decide what's right for you.

The biggest myth: "The bank owns your home"

A lot of people believe that with a reverse mortgage, the bank owns your house. That's not how it works. You keep the title. Your name stays on it. You still own your home, just like you would with a regular mortgage.

What's different is the payments. With a regular mortgage, you send the lender a payment every month. With a reverse mortgage, you aren't required to make a monthly mortgage payment. Instead, the loan balance grows over time. It's usually repaid when you sell the home, move out for good, or pass away.

The most common type is a HECM (you say it "heck-um"), short for Home Equity Conversion Mortgage. It's insured by the FHA, which is part of the U.S. Department of Housing and Urban Development (HUD).

The 3 things that can make a reverse mortgage come due

1. Not paying property taxes and homeowners insurance. You won't have a mortgage payment, but you still pay your property taxes, homeowners insurance, and any HOA dues. If those stop getting paid, the loan can go into default. If it isn't fixed, that can lead to foreclosure.
2. Not living in the home. The home must be your primary residence, meaning the place you live most of the year. If you move out for good, the loan becomes due.
3. Not taking care of the home. You agree to keep the home in good repair. That doesn't mean perfect. It means not letting it fall into serious disrepair, like a failing roof that never gets fixed.

Taxes and insurance: the one to watch most closely

When people do lose a home with a reverse mortgage, unpaid taxes or insurance are one of the most common reasons. It's not because the lender wanted the house. It's because those bills didn't get paid.

That's why lenders look closely at your budget before you get a HECM. If it looks like taxes and insurance could be a stretch, the lender may set aside part of your loan money to help pay them. This is called a set-aside. It can feel like a hurdle, but it's there to protect you. Here in San Diego, I always encourage families to look closely at these yearly costs before making any decision.

What about a hospital stay or a move into care?

This one worries families, especially when health is a concern. So let me be specific. If no co-borrower is living in the home:

• A short hospital stay or a few weeks in rehab doesn't, by itself, make the loan come due.
• If you're in a care facility, like a nursing home, for more than 12 months in a row, the loan generally becomes due.
• If you're away for more than six months for non-medical reasons, the loan also generally becomes due.
• Once a year, your loan servicer will ask you to confirm that the home is still your primary residence. It's a simple form, but please don't ignore it. Sign it and send it back right away.

What if my spouse isn't on the loan?

Couples ask me this a lot. If only one spouse is on the loan, could the other be forced out if something happens?

HECMs have protections for what HUD calls an "eligible non-borrowing spouse." For loans made on or after August 4, 2014, the spouse may be able to stay in the home after the borrower passes away if they meet HUD's rules, which include:

• Being named as a non-borrowing spouse in the loan documents at closing.
• Being married to the borrower at closing and staying married.
• Living in the home at closing and continuing to live there as their primary residence.
• Keeping the loan out of default for other reasons, like unpaid taxes or insurance.

The rules depend on when the loan was made. If you're married and only one of you will be on the loan, please make sure you both understand exactly where your spouse stands before you sign anything.

Will my kids lose the house?

When the last borrower passes away or moves out for good, the loan becomes due. But your heirs have options:

• Keep the home by paying off the loan balance, often with a new loan of their own.
• Sell the home, repay the loan, and keep whatever equity is left.
• If the home is worth less than what's owed, they can settle the loan by selling for at least 95% of the appraised value. The FHA mortgage insurance covers the rest, so they won't be handed a bill for the difference.

There is a timeline. After the loan is due, your heirs will get a notice and have a limited window to decide, often 30 days, with extensions sometimes possible up to six months. That's why I encourage families to be part of the conversation from the start. This isn't just a mortgage decision. It's a retirement and estate planning decision too.

One more thing that may ease your mind. Before anyone can get a HECM, they must meet with a counselor from a HUD-approved counseling agency. That counselor isn't me. Their job is to give you unbiased information about the loan, including everything we just covered, so you don't go in blind.

What to do next

So, can you lose your house with a reverse mortgage? It can happen, but it usually comes down to taxes and insurance, living in the home, and taking care of it. If you understand those going in and plan for them, a reverse mortgage can be one way to use the wealth you've built in your home while you keep living in it.

Is it right for everybody? No. For some families, selling or downsizing makes more sense. A few good first steps:

1. Write down what you pay each year for property taxes, homeowners insurance, and any HOA dues.
2. Talk with your spouse and your adult kids so everyone hears the same information.
3. Ask all your questions before you sign anything, and understand the numbers for every option: staying, selling, or using your equity.

A simple place to start is my free guide, Stay, Move, or Use Your Equity? It walks you through a few plain questions to help you see which path fits you best.

Or call me at 619-586-6196. I'm happy to look at your situation with you, with no pressure. And if you'd rather hear this in my own words, watch the video here.

This article is for general education only and isn't tax, legal, or financial advice. Reverse mortgage borrowers must be 62+, occupy the home as their primary residence, and keep paying property taxes, homeowners insurance, and home maintenance. Amanda LaRussa, NMLS #2166834. Edge Home Finance Corporation, NMLS #891464. Equal Housing Opportunity.