Inherit a house with a reverse mortgage can be a complex situation. A reverse mortgage is a loan designed for homeowners, typically seniors, to access their home equity without selling their property. The borrower doesn’t make monthly payments; instead, the loan balance grows over time. When the homeowner passes away, moves out, or sells the property, the loan becomes due. If you inherit such a property, you will need to decide whether to repay the loan balance to keep the house, sell the house to settle the debt, or negotiate with the lender. Understanding the terms of the reverse mortgage is crucial to making an informed decision.
Learn More About Reverse Mortgages and How They Work
To understand reverse mortgages, it’s important to know how they work. The loan allows borrowers to use their home equity while deferring repayment. The reverse mortgage balance includes the initial amount borrowed, plus interest and fees. Borrowers must still meet property costs like taxes and insurance. Repayment occurs when the borrower leaves the home, often by selling the home or using other funds to pay off the reverse mortgage.
What Happens If You Inherit a House With a Reverse Mortgage?
If you inherit a house with a reverse mortgage, you must decide how to handle the loan. You can repay the loan balance to keep the home or sell the home to pay off the reverse mortgage. If the home’s value exceeds the reverse mortgage balance, the remaining equity becomes part of the inheritance. Understanding the mortgage balance and options is key to making the best decision as an heir.
If You Inherit a House With a Reverse Mortgage
If You Inherit a House With a Reverse Mortgage, it’s important to know how they work. The loan allows borrowers to use their home equity while deferring repayment. The reverse mortgage balance includes the initial amount borrowed, plus interest and fees. Borrowers must still meet property costs like taxes and insurance. Repayment occurs when the borrower leaves the home, often by selling the home or using other funds to pay off the reverse mortgage.
If You Inherit a House With a Reverse Mortgage : What You Need to Know
If you inherit a house with a reverse mortgage, you must decide how to handle the loan. You can repay the loan balance to keep the home or sell the home to pay off the reverse mortgage. If the home’s value exceeds the reverse mortgage balance, the remaining equity becomes part of the inheritance. Understanding the mortgage balance and options is key to making the best decision as an heir.
Options for Heirs When Inheriting a Home
When heirs inherit a home with a reverse mortgage, they have options to consider. They can keep the property, sell it, or let the lender take possession. The loan balance becomes due when the borrower passes away. Heirs must evaluate the home’s market value and appraised value to decide. If the balance or 95% of the home value is paid, the heirs can keep the home or sell it to cover the debt.
How to Keep the Property or Sell the Property After Inheriting
To keep the property, heirs must pay the reverse mortgage balance or 95% of the appraised value, whichever is less. This is often done using a line of credit or other funds. Selling the property is another option to settle the loan. By selling, heirs can use the home’s market value and remaining home equity to pay off the debt and potentially retain any surplus.
Steps to Pay the Reverse Mortgage and Retain the Home
- Act quickly after receiving the due and payable notice to start the process.
- Get an appraisal to determine the home value and confirm the home equity conversion balance.
- Use funds from savings, a line of credit, or a new loan to pay the amount due.
- Ensure payment meets the required amount of the appraised value or balance or 95%, whichever is less.
- Prompt action helps avoid delays or complications with the lender.
The Role of Equity and Mortgage Owed
Equity plays a crucial role in a property with a reverse mortgage. A Home Equity Conversion Mortgage (HECM) allows homeowners to access their home equity without making monthly mortgage payments. The loan balance grows over time and becomes due when the borrower moves out or passes away. Heirs must evaluate the value of the home and its equity to decide whether to pay off the loan or sell the property.
How Equity Affects Inherit a House With a Reverse Mortgage
The equity in the house directly impacts what happens when a reverse mortgage borrower dies. The reverse mortgage loan grows over time, reducing the remaining equity. If heirs want to keep the house, they must pay off the mortgage by covering the loan balance or 95% of the property value. If equity is insufficient, heirs can sell the house or hand it over to the reverse mortgage lender to satisfy the debt.
Mortgage Owed and What the Lender Requires
- Reverse mortgage becomes due after the borrower’s death or when the home is no longer the primary residence.
- The reverse mortgage company or lender requires heirs to settle the debt.
- Heirs can either sell the inherited property or pay off the balance of the reverse mortgage.
- Non-recourse loan terms ensure heirs are not liable for more than the value of the property.
- Mortgage insurance covers any remaining reverse mortgage debt, protecting heirs from financial burdens.
- Prompt action is essential to satisfy the reverse mortgage and avoid complications.
Estate Planning and Reverse Mortgages
Including a reverse mortgage as part of an estate plan is essential for minimizing issues. A reverse mortgage can create problems for heirs if no clear plan is in place. The Consumer Financial Protection Bureau and the Department of Housing and Urban Development recommend planning how to pay off the balance of the mortgage or deciding to sell the home. This ensures that the reverse mortgage is paid without unnecessary delays.
Why Estate Plans Are Important for Homeowners With Reverse Mortgages
Estate plans help protect heirs from complications related to a reverse mortgage on the home. When the borrower dies, heirs must decide whether to keep or sell the home. Without proper planning, the reverse mortgage balance in full may become overwhelming. By preparing for the sale of the home or arranging funds to repay the reverse mortgage, homeowners can prevent heirs from facing difficult decisions.
How to Protect Heirs When a House Has a Reverse Mortgage
To protect heirs, homeowners should clearly outline how to satisfy the reverse mortgage debt in their estate plans. This includes planning to use the equity in the house to pay off the reverse mortgage or ensuring heirs can access funds to repay the reverse mortgage lender. Homeowners should communicate their wishes to avoid leaving heirs with the burden of deciding whether to keep or sell the home under pressure.
Final Thoughts:
Reverse mortgages can be complicated, but proper planning helps avoid problems for heirs. Whether heirs want to keep the property, sell the home, or transfer the home over to the lender, understanding the loan terms is crucial. Addressing the balance of the mortgage and deciding how to handle it before the death of the borrower ensures the mortgage is paid or settled effectively, safeguarding the home’s future.
FAQs
What happens if a borrower dies with a reverse mortgage?
The reverse mortgage becomes due, and heirs must repay or sell the property to settle the loan.
Can heirs keep a house with a reverse mortgage?
Yes, heirs can keep the house by paying the loan balance or 95% of the home’s value.
Are heirs responsible for reverse mortgage debt?
No, reverse mortgages are non-recourse loans, so heirs are not liable for more than the home’s value.
How can reverse mortgage debt be settled?
The debt can be settled by selling the home, repaying the loan balance, or transferring the property to the lender.
