What happens to my home if I die while in a reverse mortgage?
One of the most common questions we receive from our reverse mortgage clients is “What happens to my home if I die while in a reverse mortgage?” We understand a big concern for seniors is what they leave behind to their heirs. Remember ALL reverse mortgages are an FHA loan product and administered by HUD (Housing and Urban Development) Every reverse product follows strict HUD guidelines. HUD is very clear as to what happens to your home upon your death or the sale of your home. The questions of “Will my kids inherit debts or liabilities from this loan?” or “Is my house a burden to my heirs with this loan?” are answered in the following HUD regulation:
“HUD’s regulations at 24 CFR 206.125(c) state, in part, that “[i]f the mortgage is due and payable at the time the contract for sale is executed, the borrower may sell the property for at least the lesser of the mortgage balance or five percent under the appraised value” (i.e., 95% of the appraised value of the mortgaged property). HUD interprets the word “sale” to include any post-death conveyance of the mortgage property (even by operation of law) to the borrower’s estate or heirs (including a surviving spouse who is not obligated on the HECM note). A loan payoff that occurs simultaneously with or immediately following such a post-death conveyance will be regarded as a sale transaction for purposes of section 206.125(c).”
So as you can see, HUD is clear that the absolute most the lender can earn from a post-death or sold home that has a reverse mortgage or HECM product is 95% of the appraised value or the amount of the loan, whichever is LESS. Therefore, your heirs will never be burdened by a reverse mortgage (other than the vacation time requests you give them from not paying a monthly mortgage payment!). The home is simply sold at the time of death or vacancy due to the borrowing senior moving to a care facility, etc. HUD capped it at 95% to allow for closing costs or real estate agent fees to be paid from the left over equity so your heirs won’t have to worry about money out of pocket to sell the home.
With this information, let the worries and myths of what might happen fade away and relax in the thought of your monthly mortgage payment free home. If you would like further information regarding reverse mortgages or would like to learn just how easy we can make your life, please call Easy 62 today!
Source:HECM Servicing FAQ’s PDF