Reverse Mortgage Lenders offer homeowners aged 55 and up the chance to get a reverse mortgage, which is a type of loan. With these equity options, the borrower can take money out of the home's value to pay for living costs in retirement. The people who get a reverse mortgage don't have to make monthly payments, but there are three things that must be true.
The property must be where the borrowers live full-time. Most lenders will ask you to let them know if a co-borrower won't be living in the property for a long time or ask you about Refinancing Reverse Mortgage. As a general rule, you need to live in your home for 6 months plus 1 day every year. It doesn't have to be in order. It can be added up. There are times when someone needs or wants to be away from home for longer periods of time. If that were to happen, you should tell your service provider, and they will make a note of it. The most important thing you have to do is get an annual occupancy certificate. On the anniversary of your loan, you will get a form like this one in the mail. By signing the document, you say that you still live in the house as your main residence. If you stop living in the house as your main home, you might have to pay back the loan.
The borrowers are responsible for paying their home insurance, property taxes, and, if applicable, HOA dues on time. If you don't do this, you won't be able to pay back your loan. It's a big deal, but you might be able to get a few small breaks to help you out in certain situations. If you are having trouble paying your taxes, insurance, and HOA dues, you might want to think about selling your house.
The borrowers are in charge of keeping the property in good shape. The lender has the right to look at the property, even though there would have to be some pretty big problems for an inspection to be necessary. If a property inspection shows that repairs are needed, the borrowers will be told and given 60 days to make the repairs. If the repairs aren't done, the loan might not be paid back.
The debt isn't due until the last person who borrowed money dies, moves out, or doesn't meet the property criteria. When any of these things happen, the debt must be paid. If the adult children still want to live there, they should try to find a way to pay off the reverse mortgage.
What are your responsibilities as an heir?
When your parents leave their house because they are sick, die, or can't take care of it, your options as the heir depend on a number of factors, some of which you can change and some of which you can't. It is important to know that you are not responsible for paying off the reverse mortgage if there is a balance left. Since this loan can't be paid back, the house is the only thing that can protect it. If the loan is “underwater,” neither you nor your parents have to pay for any shortfall.
If there isn't another co-borrower who lives in the house and uses these equity options, the debt is usually paid off in the following ways:
- Sell the house to pay off the debt.
- Change the mortgage to someone else's name, like an heir.
- Pay the rest of the loan with cash.
You can pay off the debt by giving the lender the house.
You can pay off the debt in up to a year. It is very important that you follow the progress standards, because this timeline will move forward in steps, and each step needs to be approved by the servicer. The most important thing to remember is to talk to the service provider.
What happens to co-borrowers?
When the last co-borrower leaves the property because he or she died, got sick, or couldn't keep making loan payments to keep the property, the loan is paid off. If one co-borrower dies, the other co-borrowers can still use the benefits of reverse mortgage equity solutions as long as they can keep up with their obligations.
You need to know who is listed as a co-borrower or an heir on the reverse mortgage paperwork. For example, if your mother and father are both co-borrowers and your father dies, your mother can stay in the house as long as she can keep up with the loan's terms, which include paying the mortgage, property taxes, insurance, and any homeowner's association dues that apply. If the reverse mortgage was only in your mother's name, however, and she dies, your father might have to leave the house unless he or someone else can refinance the loan into his name. Your mother would be considered a non-borrowing spouse, and the rules about this are complicated. If one of your parents is in this situation, you need to contact the loan servicer right away. They will be able to look at your parent's options because the “non-borrowing spouse” laws have been changed many times. If you don't like the solutions, you might want to talk to a lawyer who has worked in this area before.
If you want to sell your house, what do you do?
One of the most common ways to pay off a reverse mortgage loan debt is to sell the house. This step may be the easiest if none of the heirs want to keep the property. When there are more than one heir, the family should be clear about what they plan to do with the house. If you have these talks before your parents die, you won't have to make big decisions when you're sad.
If you decide to sell the house, there are likely only two things that will happen. A knowledgeable realtor can help you plan by telling you what to expect based on what's going on in the local market.
The house is sold for less than what is still owed on the mortgage. Neither the estate nor the heirs are personally responsible for the difference in this case. The lender takes whatever money the house can bring in and then asks the Federal Housing Administration for the rest.
You get more money from selling the property than is needed to pay off the loan. When this happens, the heirs get any money that is left over after the debt is paid off.
What Happens If You Refinance the House in Your Name?
If the mortgage is a Home Equity Conversion Mortgage, or HECM, and you want to keep the house after your parents die, you must pay the debt or 95% of the property's appraised value, whichever is less. The United States Department of Housing and Urban Development's Federal Housing Administration backs HECMs, which gives lenders more protection against default. Even though the most common type of reverse mortgage is the HECM, there are other equity options that are similar. If the mortgage in question is not a HECM, the information above might not apply. You should talk to your lender for advice that is specific to your situation.
The process is sometimes called “buying back” the house from the lender by the heirs. In a reverse mortgage, it's important to remember that the lender does not own the home. Your parents used to own the house, but now that you are the heir, it belongs to you. But if you want to keep the house, you have to pay back the rest of the loan if you want to keep it.