The HECM reverse mortgage offers some little-known and amazing protections for non borrowing spouses. We’ll explain who is eligible, what those protections are, and some important qualifying considerations you need to know about.
The HECM reverse mortgage isn’t always perfect for every homeowner, but it’s a great solution for the right candidate. Over the last decade, the HECM program has been enhanced with new protections that make it safer and more beneficial than ever before.
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What is a Non-Borrowing Spouse?
A non-borrowing spouse (NBS) is a spouse who is not a party to a HECM reverse mortgage loan agreement. There are two types of non-borrowing spouses, eligible and ineligible:
- Eligible: This is a spouse who lives in the home securing the reverse mortgage, is married to the borrower at the time of application, and remains living in the home and married to the borrower for the rest of the borrower’s life. An eligible non borrowing spouse “has “inherits” some key reverse mortgage protections, which we’ll cover shortly.
- Ineligible: A spouse who does not meet the above criteria.
There are a few different reasons why a spouse might be an eligible non borrowing spouse, but the most common is age.
The most common ineligible non borrowing spouse is a spouse who doesn’t live with the borrower. This is common in situations where the spouses are separated, but never formalized a divorce.
Important Note For Texas Residents: Eligible non-borrowing spouses aren’t specifically prohibited by HUD in Texas, but most reverse mortgage lenders don’t allow them because of how the relevant Texas state laws are structured.
Important Protections for Eligible Surviving Non Borrowing Spouses
The Department of Housing and Urban Development (HUD) made important changes to the HECM reverse mortgage in April 2014 to better protect eligible non borrowing spouses.
Prior to the change, only individuals over the age of 62 could be on the reverse mortgage loan agreement. This created a big potential pitfall for spouses younger than 62 if the older spouse passed away.
The death of the older spouse triggered a maturity event that made the loan balance due and payable in full. The younger spouse (who was not on the loan agreement) had to either pay off or refinance the loan balance or be forced to sell the home.
Fortunately, HUD resolved this problem by building new protections into the HECM program. Today, a surviving eligible non borrowing spouse can remain living in the home after the older spouse passes away without having to repay the loan balance. This so-called deferral period remains in effect as long as the non-borrowing spouse fulfills their program obligations, including living in and maintaining the home and paying the required property charges.
In 2021, FHA expanded the deferral period eligibility to include non-borrowing spouses married to individuals who have lived in a health care facility for at least the last 12 consecutive months.
Also in 2021, HUD removed the requirement for non-borrowing spouses to establish marketable title or demonstrate their legal right to remain in the home following the death of the older spouse. This change makes it easier to establish eligibility for the deferral period.
Though non-borrowing spouses can “inherit” the protections built into the HECM, they do not receive any remaining funds in the HECM. Any remaining term or tenure payments are discontinued and/or any available line of credit is closed out when the older spouse passes away.
Important: The deferral period only applies to HECM reverse mortgages. Non FHA-insured proprietary or jumbo reverse mortgages typically don’t have deferral period protections for non-borrowing spouses.
Qualifying Requirements & Considerations
There are some important qualifying requirements and considerations to be aware of if you intend to apply for a HECM reverse mortgage with a non borrowing spouse.
- If you’re in a community property state: If you’re in one of the nine community property states (Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin), the lender will likely ask to run a credit report on any eligible non-borrowing spouse.
- HECM counseling is required: Eligible non-borrowing spouses are required to attend HECM counseling along with the borrower.
- Income as a compensating factor: Non-borrowing spouse income can be used as a compensating factor to help meet the reverse mortgage income requirements. The lender will pull a credit report for the non borrowing spouse and will add his/her income and debt obligations to the residual income calculation. Any derogatory credit items on the non borrowing spouse’s credit report will be ignored for purposes of the credit analysis. If the total combined household income meets the residual income requirements, then your income should qualify. If your residual income comes up short, you may still qualify with a LESA.
If you’d like to learn more about how a HECM reverse mortgage works, check out our reverse mortgage basics article or watch the video below.
What is an ineligible non borrowing spouse?
An ineligible non borrowing spouse is a spouse who does not live with the borrower, does not remain living with the borrower, or does not remain married to the borrower.
What are benefits for a non-borrowing spouse?
A HECM reverse mortgage eligible non borrowing spouse can remain living in the home after the older spouse passes away as long as they remain in good standing.