If I have a reverse mortgage loan, will my children or heirs be able to keep my home after I die?
It depends. If you have a Home Equity Conversion Mortgage (HECM) your heirs will have to repay either the full loan balance or 95% of the home’s appraised value–whichever is less.
Upon the death of the borrower and Eligible Non-Borrowing Spouse, the loan becomes due and payable. The heirs have thirty days from receiving the due and payable notice from the lender to buy the home, sell the home, or turn the home over to the lender to satisfy the debt. However, it may be possible for the timeline to be extended up to a year so that your heirs can sell the home or obtain financing to purchase the home. Your heirs can consult a HUD-approved housing counseling agency or an attorney for more information.
If your heirs need to sell the home
Some heirs may lack funds to pay off the loan balance, and may need to sell the home in order to repay the reverse mortgage loan. With a reverse mortgage loan, if the balance is more than the home is worth, your heirs don’t have to pay the difference. If your heirs sell the home, the lender will take the proceeds from the sale as payment on the loan, and the FHA insurance will cover any remaining loan balance.
If your heirs want to keep the home
If your heirs would like to keep your home instead of selling it, the loan must be paid off with another source of funds. Your heirs will never have to pay more than the full loan balance or 95 percent of the home’s appraised value, whichever is less.
What to do now
If you plan on leaving your home to your children, it’s important to talk to them now about their repayment options. You may also want to consider talking to a professional about creating an estate plan.
Note: This information only applies to Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage loan.