Will my children be able to keep my home after I die or move out permanently, if I have a reverse mortgage loan?

reverse mortgage when you die

updated 2/21/2014

It depends on whether they can pay off the reverse mortgage loan .

Most reverse mortgages today are insured by the Federal Housing Administration (FHA)’s Home Equity Conversion Mortgage (HECM) program. A HECM reverse mortgage loan must be paid off completely when the last surviving borrower dies or no longer lives in the home.

If your heirs don’t want to, or cannot afford to, pay off the loan they will need to sell the home in order to repay the loan. If your home is worth more than the loan balance, then they’ll get to keep the difference. If your home is worth less than the loan balance, your heirs won’t owe any additional money beyond what the home is worth.

On the other hand, if your heirs want to keep the home, they’ll need to pay off the loan immediately. If your heirs cannot afford to pay off the loan in cash, they may be able to pay off the loan by taking out a new mortgage just as if they were buying a new home. However, they’ll need to meet all the requirements of a regular mortgage, such as stable income, a credit check, and possibly a down payment.

If the loan balance is more than your home is worth, your heirs will typically only have to pay what the home is worth, not the full loan balance. With a HECM loan, your heirs can satisfy the loan by paying 95 percent of the appraised value of your home.

It can be tricky to figure out when your loan must be paid off. Look up your specific situation on this list:

If you are the only borrower on the HECM reverse mortgage and:

  • You live alone, your loan must be paid off when you die, move out permanently, or live someplace else for more than 12 months.
  • You live with a spouse or partner, your loan must be paid off when you die, move out permanently, or live someplace else for more than 12 months.
Warning: If you or your heirs cannot afford to repay the loan from other funds, your spouse or partner will most likely have

to move.

  • You live with children, other relatives, or unrelated roommates, your loan must be paid off when you die, move out permanently, or live someplace else for more than 12 months.

    Warning: If you or your heirs cannot afford to repay the loan from other funds, your children, other relatives, or unrelated roommates will most likely have to move.

  • If you are a co-borrower on the HECM reverse mortgage and:

    • You live alone because your co-borrower has died or already lives elsewhere, your loan must be paid off when you die, move out permanently, or live someplace else for more than 12 months.
    • You live with a spouse or partner who is a co-borrower on the reverse mortgage with you, your co-borrower can continue to live in the home after you pass away or while you are in a nursing home or assisted living. But if they die or need to move out too, your loan must be paid off.
    • You live with children, other relatives, or unrelated roommates. If your co-borrower is still living in the home your children, relatives or unrelated roommates can continue to live there too when you die, move out permanently, or live someplace else for more than 12 months. But if your co-borrower dies or also moves out, your loan must be paid off.

    Warning: If you or your heirs cannot afford to repay the loan from other funds, your children, other relatives, or unrelated roommates will most likely have to move.

    Note: A stay in a nursing home, with relatives, or in assisted living for less than 12 months will not affect your reverse mortgage. As long as it lasts less than 12 months, you can keep your home and come back to it afterwards.

    Tip: Some loans, known as proprietary loans, are not part of the HECM program and are not FHA insured. If you have a proprietary loan, the terms and conditions may be different. Check with your lender to make sure.

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    Source: www.consumerfinance.gov

    Category: Credit

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