Usually the heirs sell the house to pay the reverse mortgage. If the house is sold for a value greater than the loan balance, the heirs keep the difference. If the home sale is lower than the loan balance, FHA insurance compensates the deficit. If you have a home equity conversion mortgage (HECM), your heirs will have to repay the full loan balance or 95% of the home's appraised value, whichever is less.
It depends on your relationship with the deceased borrower and other factors. If you inherit a reverse mortgage from your parents or grandparents, you will have to repay the mortgage in full within one year (maximum). To do this, you can pay the lender with your own funds, refinance the property or sell it. The good news for heirs is that reverse mortgages are non-recourse loans.
That means that if the loan amount exceeds the value of the home, the lender cannot go after the rest of the inheritance or other assets of the heirs for payment. Wealth never owes more than the value of the property, says Gregg Smith, president and chief operating officer of One Reverse Mortgage. To apply for a new loan on the property or sell it, the heirs will have to transfer the title in their name if it was not previously resolved. Remember, under the reverse mortgage, heirs can choose to repay the loan by the amount owed or 95% of the present value, whichever is less.
If the heirs want to keep the home, they will never have to return more than 95% of the value of the home, regardless of the loan balance. There are no restrictions on sales to family members or otherwise, only in the event that the reverse mortgage balance is greater than the value of the property and the heirs want the lender to forgive the overvalued portion of the loan and keep the property within the family. It is one of the reasons why reverse mortgages are not recommended for seniors who want to leave the property to their heirs. Reverse mortgages can provide much-needed cash for seniors whose net worth is primarily tied to the value of their home.
Reverse mortgages are due and paid on the death of the last remaining borrower or when the last borrower leaves the home permanently. Many problems are due to heirs not knowing that their parents or grandparents have a reverse mortgage. Reverse mortgages are complicated and generally not the best option for older homeowners looking for access to extra cash. Before you apply for a reverse mortgage and take advantage of your home equity, you need to make sure you explore all the options available to you.
Even if one spouse moves to a long-term care facility, the reverse mortgage doesn't have to be repaid until the second spouse moves or dies. The heirs who inherit the property must repay the outstanding balance of the reverse mortgage by refinancing on a traditional loan of their own or by selling the house within 12 months. In addition to the potential for scams targeting seniors, reverse mortgages have some legitimate risks. The good news is that selling a home with a reverse mortgage isn't much different from selling any other home.
See why you should use a reverse mortgage, the benefits of a reverse mortgage and whether this loan is withdrawn with you. With approval from the Department of Housing and Urban Development (HUD), you can also receive extensions of up to two or three months to pay the reverse mortgage balance. A reverse mortgage allows seniors to borrow money against the value of their home and receive funds such as a lump sum, a fixed monthly payment or a line of credit. It is possible to default on a reverse mortgage by violating one of the three loan maturity rules outlined in your loan agreement.
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