Inheriting a Reverse Mortgage

Heirs must adhere to deadlines and payoff rules

Fact checked by Amanda Jackson
Reviewed by Lea D. Uradu

A reverse mortgage uses home equity to provide cash for homeowners who are age 62 or older. This Home Equity Conversion Mortgage (HECM) allows homeowners to borrow money against the value of their home and receive funds as a lump sum, a fixed monthly payment, or a line of credit.

When the borrower dies, the loan balance becomes due. If the borrower’s heirs inherit a home with a reverse mortgage, they generally have 30 days to buy the home, sell it, or turn it over to the lender. However, the deadline can often be extended to six months to allow heirs time to buy the home or secure financing.

Key Takeaways

• Inheriting a property with a reverse mortgage depends on several factors, including when it originated. 
• A widow or widower could potentially lose the home upon their spouse’s death. 
• After the homeowner’s death, a reverse mortgage loan is due within 30 days but may qualify for an extension.
• For homeowners who plan to leave a home with a reverse mortgage to heirs, they can create an estate plan.

Spouse or Co-Borrower

Heirs can inherit a home with a reverse mortgage but will be responsible for settling the debt, either by paying it off, selling the home, or turning it over to the bank. The rules depend on several factors for those who inherit a home with a reverse mortgage from a spouse:

• Co-borrower: A co-borrower can remain in the home and receive reverse mortgage payments. Otherwise, the loan balance must be paid within 30 days, with a potential six-month extension.
• Timeline: Some individuals may still qualify as an eligible non-borrowing spouse under U.S. Department of Housing and Urban Development (HUD) rules. Qualifying can be difficult, but heirs can keep the home without paying off the debt. The process works best if the reverse mortgage was secured on or after Aug. 4, 2014.
• Married Spouse: If a spouse took out the reverse mortgage after Aug. 4, 2014, the remaining spouse will qualify as an eligible non-borrowing spouse and stay in the home without paying back the reverse mortgage loan.

If two spouses live together in a home and only one is the borrower, the other spouse risks losing the home if the borrower dies. Check with the reverse mortgage provider to include both names on the loan if that’s what was intended.

Inheritance Issues

A reverse mortgage can create problems for heirs. Though both spouses have to consent to reverse mortgage loans, both don’t have to be named as co-borrowers. If both spouses hold the title and are borrowers on the reverse mortgage, then the surviving spouse may continue the reverse mortgage and can continue living in the house.

However, if an heir is neither a co-borrower nor the spouse of the borrower, they must pay back the reverse mortgage to the lender by:

• Paying off the mortgage balance in full with estate or other funds.
• Paying off the balance of the reverse mortgage in full by obtaining a traditional mortgage on the property.
• Paying off the reverse mortgage with the proceeds from selling the property. 

Heirs who want to keep the home by paying off the debt must repay either the loan balance or 95% of the appraised value, whichever is less. Alternatively, they could sell the home to pay off the debt and generate cash, which is the most common option, according to the Consumer Financial Protection Bureau.

Important

Heirs who want to keep the home can face problems if it has a reverse mortgage they cannot repay. A traditional fixed-rate forward mortgage can offer these heirs a funding solution, but they may not always qualify. If they cannot repay the debt, the home must be sold to satisfy the reverse mortgage debt.

Deadlines

At 30 Days

Lenders issue a Due and Payable Notice to the estate within 30 days of receiving notice of the borrower’s death. At this time, heirs are given three options:

• Pay off the remaining loan balance of the Home Equity Conversion Mortgage
• Sell the property for at least 95% of the appraised value 
• Provide the lender with a deed-in-lieu of foreclosure 

Within 60 Days

Thirty days after the Due and Payable Notice is sent, heirs must secure an appraisal of the home. A surviving, non-borrowing spouse, may apply for a deferral if eligibility requirements are met.

At 6 Months

By the end of six months, if heirs have not sold the house or repaid the debt, a lender may start the foreclosure process to satisfy the loan.

12 Months After Death of Borrower

Heirs commonly have six months to satisfy the debt. HUD may approve heirs eligible to receive two three-month extensions to pay the HECM balance, giving them a year to pay off the loan after the borrower dies.

What Happens If the Home Sells for Less than the Reverse Mortgage Owed?

If the property sells for less than the amount of debt, the heir would receive no cash from the sale. A property may sell for less than the outstanding reverse mortgage if home values have declined, if it has physically deteriorated or been damaged, or if the borrower outlived the life expectancy. Heirs are not responsible for paying outstanding debt after the proceeds from the home sale are applied. Instead, Federal Housing Administration (FHA) insurance covers the lender’s shortfall.

Can a Family Member Take Over a Reverse Mortgage?

A family member cannot take over a reverse mortgage unless they are a co-borrower. Instead, they must pay off the mortgage with cash or a traditional mortgage. They can sell the property, and the resulting funds will be used to pay down the debt, with any remaining amount going to the heirs.

What Happens If a Homeowner With a Reverse Mortgage Goes Into a Nursing Home?

Reverse mortgages have residency requirements. If you go into a nursing home for an extended period, then the reverse mortgage loan will become due, the home may be sold, and any proceeds from the sale of the home may make you ineligible for government benefits.

The Bottom Line

Heirs may encounter several problems when inheriting a reverse mortgage. The process for inheriting a property with a reverse mortgage depends on whether the heir is a spouse or a co-borrower of the mortgage and when it originated.