Inheriting a house with a reverse mortgage can feel like an unexpected burden during an already difficult time. You likely have many questions about your responsibilities and what options you have for dealing with the outstanding loan balance. But depending on your circumstances, you have several paths forward.
Below, we’ll walk through your options—from keeping the home and paying off the reverse mortgage to selling the house or allowing foreclosure. We’ll also cover the typical timelines for making decisions, as well as the pros and cons of each choice. So, with that in mind, here’s what happens if you inherit a house with a reverse mortgage.
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As an heir, yes, you can inherit a house with a reverse mortgage.
Reverse mortgages allow owners who are 62 or older to get cash from their home equity. They don’t need to make monthly payments. Instead, the loan balance grows and becomes due when the last borrower moves out or dies.
If you’ve inherited a home with a reverse mortgage balance that’s due, you won’t need to make monthly payments on the reverse mortgage, and you have four options for settling the debt:
The most important fact to know is this…
You’re not personally liable for the reverse mortgage debt—even as an heir. The lender can only get repaid from the home’s value itself. Your personal assets are never at risk.
Now, there’s also the case of co-borrowers.
The lender will give you a timeline and options to repay the loan or vacate the property. Contact the lender immediately after inheriting to understand your responsibilities. Based on your inheritance, you may want time to evaluate your options or speak to an attorney.
If you’re a co-borrower on the reverse mortgage (such as a surviving spouse or a roommate), the situation is different from being a non-borrowing heir. As a co-borrower, you have the right to continue living in the home without having to repay the reverse mortgage loan balance immediately.
So you don’t need to do anything. You can continue living in the home without making monthly mortgage payments. However the loan balance will continue growing over time as interest and fees accrue.
The reverse mortgage loan only becomes due and payable when the last surviving co-borrower passes away or permanently moves out of the home. At that point, you or your heirs would need to repay the full loan balance, sell the home, or deed the home back to the lender.
Not sure whether you’re a co-borrower? Check the reverse mortgage documents, and look for your name listed alongside the original borrower. You also would have gone to reverse mortgage counseling when the loan was taken out. If your name isn’t on the paperwork, you’re most likely not a co-borrower. In this case, different rules will apply when inheriting the home.
As long as you continue meeting your reverse mortgage responsibilities, including paying taxes and insurance and using the home as your primary residence, you can defer repayment as a co-borrower.
Being a co-borrower makes it easier to remain living in the home after inheriting it compared to being a non-borrowing heir. Just be sure to stay on top of your responsibilities for the reverse mortgage.
You’ll need to settle the outstanding loan balance if you’ve inherited a home with a reverse mortgage and you’re not a co-borrower. There are several ways to do this.
This table outlines your options and when each might be best:
Option | Best for |
Sell the home | When you don’t plan to live in the home and want to settle the debt |
Pay off mortgage | When you have sufficient funds and want to keep the home |
Get a new mortgage | When you lack funds to pay off the reverse mortgage in full but want to keep the home |
Sell assets you inherited to pay off the reverse mortgage | When you’ve inherited property you can sell that’s of sufficient value to pay off the reverse mortgage and want to keep the home |
Allow foreclosure | When there’s insufficient equity and you don’t want to retain the home |
Perform a deed in lieu of foreclosure | When avoiding foreclosure proceedings is preferable to settling the debt |
Selling the home may be the simplest route if you don’t intend to live in the inherited property. You can list and sell the home just like you would any piece of real estate, and you could then use the proceeds to pay off the reverse mortgage balance.
Anything left over after selling the home is yours to keep. And if the home sold for less than the loan balance, you’d be OK if it sold for at least 95% of its appraised value. By law, lenders must accept 95% of the appraised value to satisfy the debt. So, if you sold the home for less than the balance, you wouldn’t owe any money.
Another option is to pay off the full outstanding loan balance or at least 95% of the home’s appraised value. This involves using your own money, such as savings or investments, to settle the reverse mortgage debt.
Paying off the loan allows you to take full ownership of the home, free and clear of any reverse mortgage. This may be an attractive choice if you want to keep living on the inherited property.
But it requires having enough liquid assets available to cover the potentially sizable reverse mortgage balance, including accrued interest and fees. You’ll be responsible for the entire loan amount, even if it exceeds what the home is worth.
Don’t have enough to pay off the debt in full? Another option as a non-borrowing heir is to obtain a new conventional mortgage to pay off the reverse mortgage on the inherited property. This involves applying for and securing a traditional home loan, such as a 15-year or 30-year fixed-rate mortgage.
You’d then use the proceeds from the new mortgage to satisfy the full outstanding balance on the reverse mortgage. This allows you to keep the home while replacing the reverse mortgage with a standard mortgage payment schedule you’re now responsible for.
Qualifying for a new mortgage will depend on your individual credit, income, and other financial factors. However, it provides a way to retain the inherited home without having to come up with the entire reverse mortgage payoff amount upfront. The tradeoff is now committing to regular monthly mortgage payments.
If the deceased homeowner left cash or other assets to you—such as stocks, jewelry, or precious metals—and you’d rather have the home, you can sell these assets and use the proceeds to pay off the reverse mortgage; then you can keep the home.
If the reverse mortgage balance on the inherited home exceeds the property’s current value, the house can’t be sold for at least 95% of its appraised value, and you don’t want to keep the home, you have the option to allow the lender to foreclose on the property, which can take around six months.
You can voluntarily transfer the property title to the lender through a deed in lieu of foreclosure as an alternative to foreclosure.
When you sign the home over to the lender, you avoid some of the hassles of foreclosure. But it has the same end result—you’re relieved of the reverse mortgage debt obligation. It’s worth considering whether you want to exit the reverse mortgage debt quickly and avoid the foreclosure process.
Here’s what happens timeline-wise when you inherit a home with a reverse mortgage.
Within 30 days:
You have three options once you receive a Due and Payable notice:
Within 60 days:
Within six months:
Within 12 months:
The loan becomes due once a homeowner with a reverse mortgage passes away. In most cases, heirs will have up to six months to either repay the balance of the reverse mortgage or sell the home to satisfy the loan. Lenders can’t demand an amount greater than 95% of the appraised value of the home, even if the loan balance is higher.
Even after obtaining a reverse mortgage, the homeowner remains the owner of the house. As long as the homeowner lives there and is abiding by the loan terms—such as keeping up with property taxes and insurance—they retain ownership rights. Upon their passing, the property typically passes to their heirs.
In general, reverse mortgages can’t be taken over or assumed by anyone. If an heir wishes to keep the property, they must repay the reverse mortgage, often through a refinance—obtaining a new loan to pay off the reverse mortgage.
If you’ve inherited a property with a reverse mortgage and can’t afford to pay the loan, there are options. One course of action is to sell the home, using the money from the sale to pay off the reverse mortgage.
You can also turn the home over to the lender in a move called a deed in lieu of foreclosure. Either way, as an heir, you’re not personally liable if the sale of the house doesn’t cover the loan amount.
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