Senior Reverse Mortgage

Seniors who want to cash in on their home equity must follow a few important FHA reverse mortgage guidelines. Under these guidelines, reverse mortgage borrowers are required to use their home as their principal residence in order to keep their loan from coming due. This means that seniors who spend more than 364 consecutive days with a relative or in an assisted-living facility will be asked to repay their loan.

This, however, raises a few questions. Many borrowers wonder what principal residency actually entails. Others wonder how lenders keep monitor their residency. Do lenders track whether borrowers are following all FHA mortgage guidelines, or is it up to borrowers to provide their lender with accurate information?

FHA Reverse Mortgage Guidelines: The Terms of a Principal Residence

According to FHA, for a home to be considered a principal residence, borrowers must occupy the home for most of the calendar year. If there are two borrowers, at least one borrower must live in the home for most of the year. Seniors who take advantage of the HECM for Purchase program must also move into their new residence within 60 days of closing their loan. As long as borrowers abide by these guidelines, the terms of occupancy are fairly lenient. Borrowers can spend time in a vacation home, visit relatives or travel and still maintain a principal residence.

How Lenders Monitor Borrowers’ Occupancy

While some seniors might think they can trick their lender, lenders do make sure that borrowers comply with the necessary FHA reverse mortgage guidelines. To monitor residency, mortgage servicing companies send borrowers an “Occupancy Certificate” approximately one year after closing their loan. This certificate must be signed and mailed back to the servicing company within 30 days. While seniors could potentially lie, it is considered a criminal offense to fake occupancy to prevent a loan from coming due.

Servicing companies also monitor borrowers by tracking their return mail. Borrowers who receive their loan proceeds in monthly installments or as a line of credit will receive monthly statements from their servicing provider. If these or the annual Occupancy Certificates are returned by the post office, servicers take this as a sign that the borrower has moved. This helps servicing companies make sure that borrowers are in compliance with FHA’s occupancy guidelines.