Reverse Mortgages in Trust: Can You Hold the Home in a Revocable Trust?
Key Takeaways
- Yes, you can get a reverse mortgage if your home is in a Revocable Living Trust.
- Irrevocable trusts are generally not allowed by the FHA.
- The lender must review the trust documents before closing.
Many seniors place their primary residence into a trust as an estate planning tool to avoid probate court and ensure a smooth transfer of assets to their children upon death.
A frequent question is: If my house is in a trust, do I have to take it out to get a reverse mortgage?
The short answer is no, provided the trust is structured correctly according to FHA guidelines.
Revocable vs. Irrevocable Trusts
The Federal Housing Administration (FHA) distinguishes heavily between the two main types of trusts.
Revocable Living Trusts (Allowed): A revocable trust is one that you can change, amend, or dissolve at any time while you are alive. The FHA allows homes held in a revocable trust to qualify for a Home Equity Conversion Mortgage (HECM). Because you retain full control of the asset, you still meet the FHA's strict homeownership requirements.
Irrevocable Trusts (Generally Prohibited): An irrevocable trust is one that cannot be easily changed once signed. You permanently surrender ownership of the assets to the trust. Because you no longer legally own or control the home, the FHA will not insure a reverse mortgage on a property held in an irrevocable trust.
The Lender Review Process
If your home is in a revocable trust, you must notify the reverse mortgage lender immediately during the application process.
The lender's underwriting and legal teams must review the complete trust document. They are checking for specific requirements: 1. Primary Beneficiary: The senior applying for the loan must be the primary beneficiary of the trust. 2. Occupancy Right: The trust must explicitly guarantee the senior the right to live in the home for the rest of their life. 3. Signatory Authority: The trust must grant the trustee (usually the senior) the legal authority to encumber the property with debt (i.e., the power to sign a mortgage).
Does It Delay Closing?
Yes, slightly. Because the lender's legal department must review the trust documents to ensure compliance with federal law and state-specific trust statutes, it typically adds an extra week to the underwriting timeline.
If the trust is poorly written or lacks the explicit power to borrow against the property, the lender may require you to have your estate attorney draft an amendment to the trust before they will approve the loan.
In summary, having a revocable living trust is excellent for estate planning and does not disqualify you from accessing your equity via a reverse mortgage.