It depends. In the event that you have a Home Equity Conversion Mortgage (HECM), your heirs will be required to pay back either the entire loan balance or 95% of the home’s appraised value, whichever is less.
The loan becomes due and payable upon the demise of the borrower and Eligible Non-Borrowing Spouse. After receiving the lender’s notice that the debt is due and payable, your heirs have 30 days to settle the debt by purchasing, selling, or returning the property to the lender. However, it might be possible to extend the deadline by up to a year so that your heirs have time to sell the house or find financing to buy it. For more information, your heirs may speak with a HUD-approved housing counseling organization or an attorney.
If your heirs need to sell the home
Some heirs might not have enough money to pay back the loan balance and might have to sell the house to pay back the reverse mortgage loan. Your heirs won’t be responsible for making up the difference if the remaining loan balance exceeds the value of the house. Your home’s sale proceeds will be used by the lender to pay off the loan if your heirs sell it, and any outstanding loan balance will be covered by the FHA insurance.
If your heirs want to keep the home
If your heirs choose to keep your house rather than sell it, they must pay it off with money from a different source. Your remaining loan balance, or ninety-five percent of the home’s appraised value, whichever is less, will never be collected from your heirs.
What to do now
It’s crucial to discuss your children’s repayment options now if you intend to leave your home to them after you pass away. You might also want to think about consulting a specialist about drafting an estate plan.
Note that only Home Equity Conversion Mortgages (HECMs), the most prevalent form of reverse mortgage loan, are covered by this information.
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FAQ
How long do heirs have to pay off a reverse mortgage?
The loan becomes due and payable upon the demise of the borrower and Eligible Non-Borrowing Spouse. After receiving the lender’s notice that the debt is due and payable, your heirs have 30 days to settle the debt by purchasing, selling, or returning the property to the lender.
Who owns the house after a reverse mortgage?
No. The title to your home remains in your possession after you take out a reverse mortgage loan. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs).
Can a family member take over a reverse mortgage?
Unfortunately, a family member cannot take over a reverse mortgage. A family member cannot be added to an existing reverse mortgage. Even if the surviving spouse was not a co-borrower on the loan at the outset, they might be qualified to continue receiving benefits by requesting a deferral through the HUD.
What happens to property when someone dies with a reverse mortgage?
The lender will send an appraiser to ascertain the home’s market value after the borrower passes away. To keep the property as an heir, you are not required to pay off the reverse mortgage in full. If the market value of the property is less than the loan balance, you can keep the house for 95% of that amount.