What Happens When You Inherit A House
Inheriting a house while a generous gift from a loved one kicks off a process that can be fraught with emotion. Youre likely receiving this property as a result of a loved ones death, and the financial decisions that come with inheriting property can be stressful and confusing.
The best way to move forward is knowing your options, assessing the financial consequences of your choice, and seeking expert assistance in navigating the tax and legal requirements.
Can You Inherit A House With A Mortgage
Inheriting a home with a mortgage adds another layer of complexity to settling the estate, as explained in a recent article from Investopedia titled Inheriting a House With a Mortgage. The lender needs to be notified right away of the owners passing and the estate must continue to make regular payments on the existing mortgage. Depending on how the estate was set up, it may be a struggle to make monthly payments, especially if the estate must first go through probate.
Probate is the process where the court reviews the will to ensure that it is valid and establish the executor as the person empowered to manage the estate. The executor will need to provide the mortgage holder with a copy of the death certificate and a document affirming their role as executor to be able to speak with the lending company on behalf of the estate.
If multiple people have inherited a portion of the house, some tough decisions will need to be made. The simplest solution is often to sell the home, pay off the mortgage and split the proceeds evenly.
If some of the heirs wish to keep the home as a residence or a rental property, those who wish to keep the home need to buy out the interest of those who dont want the house. When the house has a mortgage, the math can get complicated. An estate planning attorney will be able to map out a way forward to keep the sale of the shares from getting tangled up in the emotions of grieving family members.
How Heirs Should Handle A Reverse Mortgage After Death
I’m constantly hearing from heirs of reverse mortgage holders who are wondering what they should do now that the last borrower on the loan has passed or had to move to assisted living. Many heirs have no idea what their options or obligations are or how long they must do them.
If you have a reverse mortgage or have a family member who has a reverse mortgage, you need to arm yourself with this information. Even if you or your relative is not ready to move out of their reverse mortgaged property now, this can save you or your family a lot of grief later.
Do These Things Now Before the Borrower Leaves the Home
The loan becomes due and payable when the last original borrower permanently leaves the property. There are a lot of things you can do before the mortgage holder leaves the home to help make the process smoother later.
Check with your estate attorney, but if your heir is already on the title before you pass or it becomes a matter of a trust change and not a probation, you may be able to eliminate a huge delay for them when settling the property. It may still require a probation action, but your attorney will advise you on that. Your heirs cannot sell or take out a new loan unless they hold title to the home.
Reverse mortgage borrowers should also make sure that your heirs know where you keep your reverse mortgage statements. They will need to access them later.
Heirs Should Act Deliberately But Without Delay
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How Long Do I Have To Pay The Mortgage
As the heir of the property, you will be given 6 months from the date of the remaining partners death to pay off the reverse mortgage, but its recommended that you deal with is as quickly as you can if possible. This is because the interest on the balance and the monthly insurance premiums will diminish any remaining equity in the house until the loan is fully settled.
When You Assume The Mortgage
If youre assuming the loan, the lender or servicer should be willing to work with you. Thats because while most mortgages arent assumable, the Garn-St. Germain Act allows heirs to assume a loan for a number of reasons, including the transfer of property to a relative when a borrower passes away.
More often than not, mortgages include a due-on-sale or due-on-transfer clause that requires full repayment of the loan in the event of a change in ownership. In certain estate situations, this law prevents the lender from calling the loan, even if it has such a clause.
The Consumer Financial Protection Bureau also has newer guidelines for lenders that generally allow for an heirs name to be added to an existing mortgage when the borrower passes away.
Additionally, surviving spouses have special protections to ensure they can keep an inherited home. In many states, this includes holding the title as a tenancy by the entireties or, in community property states, a community property with right of survivorship.
If you decide to assume the mortgage and make payments, its important to work with the lender or servicer to get all the paperwork upgraded so that you become the new borrower on the loan.
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How Does A Reverse Mortgage Work When You Die Faqs
What happens if you inherit a house with a reverse mortgage?
Heirs who inherit homes with reverse mortgage loans must repay the debt when the last borrower has died, either with their own funds, by refinancing to a forward mortgage, or selling the house. If thereâs not enough equity in the home to cover the debt, the heirs are not responsible for the shortfall if the reverse mortgage loan was FHA-insured, which most are.
What happens when you have a reverse mortgage and the owner dies?
If the owner dies and theyâre the last borrower on the loan, the loan becomes due and repayment begins. However, if a significant other survives them and they are listed on the loan as a non-borrowing spouse, they may be eligible to stay in the home and defer repayment of the reverse mortgage loan.
Are heirs responsible for reverse mortgage debt?
Yes, the reverse mortgage needs to be repaid when the last borrower dies. However, heirs have options when it comes to paying off the debt. They can sell the home, keep the home by refinancing to another mortgage or buying it outright, or sign the home over to the lender in a deed-in-lieu of foreclosure. If the loan was FHA-insured, the heirs are not responsible for any shortfall if the loan balance exceeds the home value.
How Do Reverse Mortgages Work
A “reverse” mortgage is a particular type of loan in which older homeowners convert some of their home’s equity into cash. The most popular type of reverse mortgage is the FHA-insured Home Equity Conversion Mortgage . The insurance protects the lender, not the borrower.
This kind of loan is different from regular “forward” mortgages. In a reverse mortgage, the lender makes payments to the homeowner rather than the homeowner making payments to the lender. The cash is generally distributed in the form of a lump sum , monthly amounts, or a line of credit. You can also get a combination of monthly installments and a line of credit.
Because the homeowner receives payments from the lender, the homeowner’s equity in the property decreases over time as the loan balance gets larger.
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Can I Inherit A House With A Reverse Mortgage
Asked by: Demario Russel
When a person with a reverse mortgage dies, the heirs can inherit the house. … So, say the homeowner dies after receiving $150,000 of reverse mortgage funds. The heirs inherit the home subject to the $150,000 debt, plus any fees and interest that have accrued and will continue to accrue until the debt is paid off.
What Happens If I Inherit A House With A Reverse Mortgage
If you inherit a house with a reverse mortgage, there are a few things that can happen.
First, youll want to understand your relationship with the decedent who bequeathed the property to you. There is a different set of circumstances for a surviving spouse versus an heir who is not the spouse of the deceased. This is often a child, grandchild, a niece or nephew, or other close relative.
If you are the surviving spouse, chances are, you wont have to take any further action. You will simply inherit the house and continue benefiting from the reverse mortgage payments. Its important that you understand, however, that this will eventually affect your own heirs. The house becomes a part of your estate and the reverse mortgage along with it. This applies if you are on the loan as a co-borrower, or if you are treated as an eligible non-borrowing spouse. If you are not a co-borrower or for some reason do not qualify as a non-borrowing spouse, then the following set of options apply to you as well.
If you inherit a reverse mortgage property and are not an eligible co-borrower or spouse, then you will be responsible for paying off the loan in full. Hopefully, your grantor had a discussion about this before their passing and went over your options with you.
There are typically three options for satisfying the reverse mortgage debt with the lender:
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Reverse Mortgage Problems For Heirs
Inheriting a reverse mortgage can be complicated
Reverse mortgages can provide much-needed cash for seniors whose net worth is mostly tied up in the value of their home. A reverse mortgage is a loan for homeowners who are age 62 or older and have considerable home equity.
A reverse mortgage allows seniors 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. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.
If the borrower dies, their heirs may inherit the reverse mortgage. What happens next depends on several factors, including who is inheriting the loan. Generally, the loan must be paid off in its entirety, unless it is passed to a spouse. But inheriting a reverse mortgage can be a complex business, and there have been reports of problems caused by unresponsive lenders, unclear documentation, and reverse mortgages that shouldnt have been granted in the first place.
In this article, well take you through the most common problems that heirs may encounter when inheriting a reverse mortgage.
What Happens To A Reverse Mortgage After Death
After the passing of the last surviving borrower, the reverse mortgage loan balance becomes due and payable. Many believe that the home reverts to the bank upon the death of the last borrower, but that is not the case.
Your heirs will have the option to decide whether they want to repay the loan balance and keep the home, sell the home and keep the equity or simply walk away and let the lender dispose of the property.
If they choose to keep the home, they will need to repay the loan and that means either refinancing the loan with new financing or with other money available to them. They can pay off the loan at the lower of the amount owed or 95% of the current market value.
If they wish to sell the home, they need to make sure that they take whatever steps are required to change the title so that they can sell the home and we encourage borrowers to contact an estate attorney to be sure they are taking the property steps for their circumstances.
The lender will work with heirs and if they are refinancing into a loan of their own they will typically give them up to 6 months to close that loan, or up to 12 months if they are selling the home.
Every 3-month extension may require evidence the home is listed for sale on the MLS. During this time, the lender or the lenders servicer will want to see the efforts of the family to sell and this is where the communication is important.
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Reverse Mortgage: What Are The Different Types
There are three different types of reverse mortgages:
1: HECM. This is the most popular form of reverse mortgage, which is federally insured and often comes with higher up-front costs. On the plus side, however, the money you receive can be used for anything and you decide how to withdraw the funds, i.e., a line of credit, fixed monthly paymentsor both. While they are widely available, HECMs are offered solely through Federal Housing Administration-approved lenders.
2: Proprietary reverse mortgage. This type of reverse mortgage is not federally insured. If you have a home that is of high value, you can usually get a bigger loan advance from a proprietary reverse mortgage.
3: Single-purpose reverse mortgage. This type of mortgage is less common than the previous two mentioned. It is typically offered by local and state government agencies and non-profit organizations. However, it is also the least expensive. The only catch is that borrowers can only use the loan to cover one specific thing, like a handicap accessible remodel, for instance.
Whether you opt for a HECM, a proprietary reverse mortgage, or a single-purpose reverse mortgage will depend on your financial situation. It is important to do your research beforehand to understand which one will work best for you, see our best in mortgage for the info on who may be best broker or agency in your area to contact.
Reverse Mortgage Heirs Have Options: Know When To Sell Retain Or Walk Away
As a reverse mortgage heir, your responsibility is to decide whether to sell the property and pay off the dues, retain the home for sentimental reasons, or gain ownership and consider a sale in the future. Typically, on loan maturity, you will get a due and payable notice from the lender, with a 30-day time period to plan your next course of action. Most lenders allow between 3 to 12 months for the reverse mortgage repayment, and up to 6 months to determine your financing options. .
- When there is no potential equity left in the property, you may want to avoid the hassle of trying to sell, and simply sign the deed in lieu of foreclosure.
- If the home value is substantially higher than the repayable loan, you can sell the home, pay off the loan, and use the remaining proceeds to invest in a home of your own, or manage your other financial needs.
- When you dont own another property or want to retain the family home for its sentimental value, you can take ownership by paying the full loan amount, accrued interest and other associated fees. At such times, if you cannot arrange your own funds to repay the loan, you could look at refinancing options, or seek a mortgage against the inherited property.
The guarantee excludes administrative expenses and interest that has accumulated after the due date.
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Understanding Reverse Mortgages In Canada
For a Canadian homeowner who is 55 or older, a reverse mortgage may be an excellent way to improve financial liquidity, reduce financial stress, as well as secure a future inheritance for your spouse or children. Here are some of the highlights of a reverse mortgage:
- Loan amount is dispensable in different ways, depending on your desire or need lump sum, or some money upfront and the balance in instalments
- No monthly repayments required
- Borrowed amount is non-taxable
- No impact on your Old Age Security or Guaranteed Income Supplement benefits, or income from Registered Retirement Savings Plan .
Financial Planning Tips For Future Homeowners
- Do you have questions about how a home purchase could affect your long-term financial plan? A financial advisor can help with this. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
- Be sure to do significant research into what you can actually afford prior to making any down payments on a home. SmartAssets home affordability calculator is a great place to start.
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I Inherited A House With A Reverse Mortgage Is There Anything I Can Do
Itis a commonly held myth that a home with a reverse mortgage revertsback to the bank when the owner passes. A reverse mortgage agreementis a financial agreement where the homeowner gives up equity in theirhome in exchange for regular payments. The reverse mortgage isavailable to homeowners who are 62 and over, typically retirees, andallows them to convert part of the equity in their home into cash tosupplement their income.
If you inherit a house with a reverse mortgage, you own the house. The bank has to go through a foreclosure process to repossess the property. If the bank begins foreclosure, the rightful heirs have the right to sell before the foreclosure is complete.
Speak directly with the Homeowner Advocate assigned to your property. Your Homeowner Advocate can get you access to critical resources and assistance including monetary and other options specific to your property. The program is privately funded and provided at no cost to participating New York Homeowners.
- Click Here to speak with a Homeowner Advocate,
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This is for information purposes only. Subject to change without notice. It is not to be construed or relied upon as legal or accounting advice. Please click here for our complete disclaimer,