Can I inherit a home with a Reverse Mortgage? Answer: Of course, IF you’re the heir.
The False myths about Reverse Mortgages lead most people to believe that the bank will always get the home when a Reverse Mortgage is done. This is not true but its origins give good reason to believe that.
The Old Reverse Mortgage
In the old days, Reverse Mortgages were very poorly structured. It was designed with the bank in mind. Its problems included:
- High-interest rates
- High loan amounts
- It was designed to grow faster than standard appreciation rates.
The design of the Old Reverse Mortgage was to exhaust the home’s equity within about 15 years. So the home was likely to go upside down if the homeowner kept the mortgage that long. Therefore, there was no equity in the home to be inherited by the heirs.
The new Reverse Mortgage
The new Reverse Mortgage has lower loan amounts and interest rates. It’s designed to grow at or below the average appreciation rate. This means that for the majority of new Reverse Mortgages the home will never go upside down and when the homeowner passes away a substantial amount of equity will be left in the home to inherit.
Sell or Refinance
When you inherit a home with a Reverse Mortgage you do not have to sell it. You are free to refinance the home and keep it but the Reverse Mortgage that belonged to your relative must be repaid.
Use a Realtor
When you inherit a home with a Reverse Mortgage make sure you hire a realtor to sell it for you at market value. Technically you don’t have to take the home over and resell it. If you choose the bank can foreclose and sell the home for you. they will still give you any remaining equity once the mortgage is repaid but in most cases, they want to sell the home fast so they will settle for below-market prices.
95% fail safe
If your relative outlived the equity in their home and it is upside down when you inherit it you still have options. In this situation, you can purchase the home for 95% of its market value. For example, if their mortgage balance is $400,000 but the home is only worth $350,000. You as the heir will have the option of purchasing the home for $332,500 or 95% of its real value.
If you or someone you love needs more information on a Reverse Mortgage give us a call.
President – Reverse Mortgage Specialist
Heritage Reverse Mortgage
Heritage NMLS #1497455 Trevor?s NMLS #: 267962
1060 South Main Street Bldg. A Suite 101B
St George Utah 84770