One of the most common myths surrounding reverse mortgage is that once the owners pass away, the heirs will be left saddled with debt or that the bank will own the home. This couldn’t be further from the truth. The home will transfer into the estate or a specific person according to the homeowners will, just as any home with a conventional mortgage would. The major difference is that reverse mortgages are non-recourse loans and backed by the FHA, meaning no one will ever be held responsible for the debt.
Here are the options the heirs have after the owner either passes away or leaves the home permanently.
1. Pay off the remainder of the loan
Depending on the amount of equity that still exists in the home, the financial situation of the family, and just the overall ability of those involved, this may or may not be a feasible option. It’s not uncommon for a portion of life insurance to be used in this manner.
2. Obtain a conventional loan.
Many mortgage specialists are familiar with the reverse mortgage process and the right one will be able to help those in need identify the best route in obtaining a conventional loan and keeping the home.
3. Sell the home
The final option is to sell the home. When there is not a desire to keep the home, the heirs can sell the home.
One last note, as long as the communication lines remain open, the bank will typically allow up to one year to help with the transition. This one year is allotted in three month increments.
Janis Layman is a Reverse Mortgage Specialist serving the Seattle, Lynnwood, Edmonds, and Shoreline areas of Washington. Contact Janis and learn if reverse mortgage is right for you.