If the loan balance of my reverse mortgage program loan is higher than my house’s value due to my house’s value significantly dropping, what should I do? Also, my children are planning on keeping the house when I die. Would they need to pay off the entire balance of my reverse mortgage loan even if it is substantially higher than my home’s market value?
It would mainly be dependent on your specific kind of revere mortgage. The FHA or Federal Housing Administration insures the majority of reverse mortgage loans these days as part of the HECM or Home Equity Conversion Mortgage program. Loans under this program are non-recourse, which means that if your house would be sold to pay off your reverse mortgage, neither you nor your children would be required to repay more than your home’s sales price. Your insurance would setter any deficit, provided that your house sells for 95% at the least of its current market value.
If your children are looking to keep your house either when you permanently move out or pass away rather than selling it, then they would need to repay your reverse mortgage. However, they won’t need to repay more than what your house is worth. If your balance is higher than the worth of your house, they would only need to pay 95% of your house’s current market value and FHA insurance would take care of the rest.
On the other hand, if what you owe were less than your home’s worth, your children would only need to settle the balance. Your children could repay the required 95% in cash or by taking out a standard mortgage. But they would still have to undergo the usual process for taking out a new mortgage.
Other Important Things to Note
If you are an heir to a house with a reverse mortgage loan, it’s best to discuss your circumstanced with the loan servicing company. In general, the loan servicing company would give you a couple of months to decide on what you want to do, but this period would vary from lender to lender. Just stay in touch with the lender and make sure to communicate your plans, whether you want to refinance, sell the house, or just walk away.