Seniors significantly benefit from a helpful financial tool known as a reverse mortgage. However, many families wonder what happens to the home when a borrower passes away. Can children inherit a house on a reverse mortgage? The simple answer is yes. A few essential conditions must be considered when inheriting a reverse mortgage home.
What Is a Reverse Mortgage?
In a nutshell, a reverse mortgage allows senior homeowners to borrow against the equity in their home. Instead of monthly mortgage payments, the homeowner receives payments from the lender. The loan doesn’t need to be repaid until the senior homeowner sells the home, moves out permanently, or dies.
How Does a Reverse Mortgage Work for Heirs?
Once the homeowner passes away, the reverse mortgage has to be repaid. At this point, the children or heirs have a few options:
- Pay Off the Loan
If the children want to keep the home, they can repay the reverse mortgage balance with cash, a new mortgage, or other financing. Lenders typically give heirs around six months to settle the loan, but extensions may be possible.
- Sell the Home
If the heirs don’t want to keep the house or can’t afford to repay the loan, they can sell it. The reverse mortgage will be paid off with the sale’s earnings. Once paid, the remaining equity is given to the heirs if the sale price exceeds the loan sum.
- Walk Away
Heirs are not responsible for the difference if the home is worth less than the loan balance. Because reverse mortgages are non-recourse loans, the lender can only borrow no more than the home’s full value. The Federal Housing Administration guarantees that neither the estate nor the heirs will owe more than the home’s appraised value.
4 Tips for Families
- Learn to communicate early. If your parents have a reverse mortgage, talk to them about their plans for the home. This will help you avoid unwanted surprises.
- Know the timeline for the mortgage. Once the borrower dies, the lender will send a notice. The heirs must respond quickly to avoid foreclosure.
- Get an appraisal to help determine the home’s worth and the best course of action.
- Seek professional help from a real estate attorney or housing counselor.
Get Expert Guidance From Reverse Mortgage Pro
Children can inherit a home with a reverse mortgage. However, keeping the home means repaying the loan. Understanding the reverse mortgage terms, exploring options, and planning ahead is essential. Open communication and early preparation can make all the difference during an emotional time. Contact Reverse Mortgage Pro if you have questions about inheriting a reverse mortgage home.
