Do Reverse Mortgages Require You to Include Adult Children on the Deed?
Key Takeaways
- Lenders never require you to add your children to the deed.
- Adding a child to the deed can actually disqualify you from getting the loan.
- Adding a child to the deed is a dangerous estate planning strategy.
A persistent myth circulates in senior communities that if you take out a reverse mortgage, the bank will force you to add your adult children to the deed of the house to ensure the loan is paid back when you die.
This is entirely false.
Not only does a reverse mortgage lender not require your children to be on the deed, but having them on the deed will likely destroy your ability to get the loan in the first place.
The Age Requirement Conflict
To qualify for a Home Equity Conversion Mortgage (HECM), every single person listed on the deed to the property must be at least 62 years old (with the exception of an Eligible Non-Borrowing Spouse).
If your 40-year-old daughter is listed as a co-owner on your deed, you cannot get a reverse mortgage.
The lender will not approve the loan because an underage person has a legal ownership claim to the property. To proceed with the loan, your daughter would have to sign a quitclaim deed, legally removing her name from the title of the house and surrendering her ownership rights.
The Dangers of Adding Children to a Deed
Even ignoring reverse mortgages, adding adult children to your deed as a "cheap" estate planning trick (to avoid probate) is highly discouraged by elder law attorneys for several reasons:
- Creditor Risk: If you add your son to the deed, he is a legal owner of your home. If your son gets sued, files for bankruptcy, or causes a massive car accident, his creditors can place a lien on your house to satisfy his debts.
- Divorce Risk: If your daughter is on the deed and she gets a divorce, her soon-to-be ex-husband may have a legal claim to a portion of your home's equity as marital property.
- Tax Penalties: Giving a child half of your home is considered a massive gift by the IRS, which can trigger gift tax reporting requirements and destroy the "step-up in basis" tax loophole for capital gains.
If your goal is to ensure your children inherit your home easily without going through probate, you should set up a Revocable Living Trust or use a Transfer-on-Death (TOD) Deed, both of which are fully compatible with getting a reverse mortgage.