What happens after a reverse mortgage?

What happens to my house after a Home Equity Conversion Mortgage (HECM)?

It depends on the status of the homeowner: whether the homeowner is living or deceased.

Owner Is Alive

Owner decides not to keep the HECM reverse mortgage

  1. Owner sells the home
    • Owner pays the lender for the reverse mortgage.
    • Owner keeps any proceeds from the sale of the home that exceed the reverse mortgage balance.
  2. Owner keeps the home
  • Owner pays off the reverse mortgage.
  • Owner also can pay down the loan balance but keep the reverse mortgage in place in case it's needed later. The balance required to keep the reverse mortgage open varies by servicing company.

Owner Is Deceased

House has a lot of debt

Heirs want the house.

They can repay the loan at 95% of HUD appraised value, minus closing costs and Realtor commission.

Heirs don’t want the house.

They can do nothing  and allow foreclosure. The heirs aren't responsible for repaying the debt.

 

House has a lot of equity

Heirs want the house.

They can repay the loan balance. As long as they notify the servicer of their intentions and keep the servicer updated, they have up to one year to repay the loan.

Heirs don't want the house.

They can sell the house and get the funds to repay the loan balance.

They will net the difference between the loan balance and sales price.

 

The Non-borrowing spouse lives in the home

The non-borrowing spouse may remain in the home indefinitely as a permanent residence as long as the property taxes and homeowner's insurance are paid and the house is maintained properly.

Other heirs have no recourse on the home as long as the non-borrowing spouse remains

in it.

 

Note: HECMs may be one type of reverse mortgage.

Source: Jack Guttentag, The Mortgage Professor, http://www.mtgprofessor.com/A - Reverse Mortgages/What_Happens_to_the_House_That_Secures_a_Reverse_Mortgage.html

These materials are not from HUD or FHA and were not approved by HUD or any government agency.