When a person with a reverse mortgage passes away, their heirs can inherit the home, but they won't get the title to the property for free. The lender will send an appraiser to determine the market value of the home and the heirs must repay either the full balance of the loan or 95% of the home's appraised value, whichever is lower. If you don't have the money to pay the balance or 95% of the market value, you still have options such as bankruptcy or applying for a mortgage in your name. Reverse mortgages are available to homeowners age 62 and older and are a popular way for those with little cash on hand and a lot of home equity to convert that equity into cash.
The amount of principal offered to applicants is determined by factors such as average life expectancy of borrowers, current interest rate, and expected appreciation of home value. If you take out a reverse mortgage, you can leave your home to your heirs when you die, but it will leave them with less assets. In addition to HECM reverse mortgages, some state and local governments, along with non-profit organizations, offer single-purpose reverse mortgages which can only be used for a designated purpose such as home improvement. If one spouse is deceased but the surviving spouse is listed as a borrower on the reverse mortgage, they can continue to live in the home and the terms of the loan do not change.
Heirs must pay off the reverse mortgage loan or face foreclosure; if they lack funds to pay off the loan balance, they may have to sell the house. If you are an heir of a reverse mortgage borrower, you may be able to keep the house for 95% of its market value if that amount is lower than the loan balance. You may also be able to pay through a bankruptcy plan or by applying for a mortgage in your name. To get a full year before foreclosure proceedings begin, heirs must show evidence that they are organizing financing or actively trying to sell it.
A surviving spouse who was not married to the reverse mortgage borrower at the time of the loan may also be an heir.
