Did you just inherit a property with a reverse mortgage, or find out that you’re going to someday?
Inheriting a property with a reverse mortgage can be complicated, but having a plan in place with a reputable mortgage lender can help ease your worries and get the process moving immediately after your loved one leaves their home.
Let’s take a look at how reverse mortgages work, what happens when you inherit a home with one, and how you can take quick action to secure the home with a hard money lender.
How does a reverse mortgage work?
Reverse mortgages allow seniors ages 62 and older to access the equity in their homes and use the cash for immediate expenses.
They can receive the funds in one of the following ways:
- Lump sum
- Fixed monthly installments
- Line of credit
Most mortgages are traditional forward loans, where the borrower pays down their monthly mortgage payments over time.
Reverse mortgages pay the borrower the equity in the home to use the cash for whatever purposes they need, and the loan balance is due when the borrower either moves out, sells the home, or dies.
Many senior borrowers appreciate reverse mortgages because they are on a fixed income and require access to additional cash. Reverse mortgage loans must be for a primary residence, and the borrower must meet certain loan terms.
A reverse mortgage borrower still has to pay property taxes and homeowners insurance, but they won’t have to repay the loan balance as long as they continue living in the home.
The most popular reverse mortgage is the home equity conversion mortgage or HECM. Home equity conversion mortgages are backed by the Federal Housing Administration (FHA).
What’s your loan scenario?
What happens if I inherit a house with a reverse mortgage?
In a best-case scenario, the spouse or family members who will inherit the house are aware that there is a reverse mortgage on the home and are able to plan accordingly.
Or, the borrower will have a plan in place to repay the loan someday if they need to move to a nursing home or decide to sell the home.
Generally, reverse mortgages are not recommended to those who wish to leave their property to their children, because it can really put the heirs in a bind.
However, this, unfortunately, happens more often than it should. While the heirs of the home certainly have options, that doesn’t mean the decisions are easy.
The three main options for those inheriting a home with a reverse mortgage are as follows:
- Repay the reverse mortgage loan balance in full with their own funds
- Sell the home to pay off the reverse mortgage
- Sign the property title over to the lender
The heir will have to pay the lesser either the full reverse mortgage balance or 95% of the appraised property value.
If you don’t make any moves on the property within the allotted time frame, which usually is six months, the lender will start the foreclosure process.
How inheriting a reverse mortgage can get complicated
If you’re the spouse of a borrower with a reverse mortgage, you should be able to continue to receive monthly payments as long as you are listed on the title as a co-borrower or qualify as an Eligible Non-Borrowing Spouse.
But if you find out you’re not a co-borrower or an Eligible Non-Borrowing Spouse, you will be responsible for repaying the remaining loan balance or selling the home.
If you’re inheriting the property from a parent or grandparent, you’ll need to make a decision on what to do with the home within six months, or request up to two 90-day extensions while you try to repay the loan or sell the property.
You’ll also have to pay for the home’s maintenance, insurance, and taxes while the deal is in flux.
Unfortunately, some reverse mortgage heirs experience issues dealing with the original loan servicer. They may have trouble communicating or negotiating with the servicer, and it may end in foreclosure despite the heirs fighting to keep it.
Complications are most common when the heirs had no idea they were inheriting a home with a reverse mortgage attached. It can be heartbreaking to learn that a beloved family home has to be sold because the heirs can’t afford to repay the loan.
Fortunately, the heirs do have another option: a hard money loan from a private lender.
What is the best thing to do when you inherit a house with a reverse mortgage?
A reverse mortgage is the least complicated when the family is fine with selling the home or allowing the lender to foreclose.
As you can imagine, this often isn’t the case. A home is a precious resource for multiple reasons, including emotional considerations, the value of the investment or even the chance at homeownership for someone who may not otherwise have had the opportunity.
To access cash quickly to repay the reverse mortgage loan, the heirs can call a reputable hard money lender such as Marquee Funding Group.
Hard money lenders are private lenders, which means they can move a lot faster on time-sensitive deals than traditional lenders and offer a lot more flexibility.
With a hard money lender, you can get same-day approval on a loan, and cash in hand in about a week.
All you’ll have to do is tell the reverse mortgage lender that you have the funds, and you’ll be able to secure the property to keep it in the family.
Marquee Funding Group funds loans others won’t
Hard money lenders like Marquee specialize in helping borrowers secure funding for unusual or challenging financial circumstances.
We will take a look at the value of the property with the reverse mortgage as well as your unique situation to help us determine whether we have a deal.
Our deals are based on common sense and the overall merits, rather than the strict red tape required by banks and other financial institutions.
Hard money loans are generally fast, short-term loans that allow a borrower to secure the funding they need in a bind, then come up with a longer-term solution.
We offer the following options to our borrowers:
- Loan amounts from $50,000 to $20 million
- Loan-to-value up to 70% (deal specific)
- Purchase money loans
- Rate-and-term refinance and cash-out refinance
- Owner-occupied or non-owner-occupied consumer or business purpose
- Single family, multi-family, commercial, industrial, and land loans
- Construction, ground-up, fix-and-flip, fix-and-occupy, and value-add loans
Submit your loan scenario today to share your unique reverse mortgage loan situation with our team, and we’ll work to quickly offer you a solution.
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