Most homeowners that are older in age are commonly are concerned about what might happen to their home if they die? It’s something that any family should spend time looking into.
Let’s take a look at some of the finer details about reverse mortgages and determine if it’s a path you may want to look into for your home.
Some Common Questions People ask:
- – I needed the money and took out a reverse mortgage, now what? What’s the bank going to do when I die? Well, the bank doesn’t want your home. They want the money back. They are willing to work with your heirs to make this happen.
- – I wonder what if the place isn’t worth that much after I die. Will my kids get stuck with the balance? The bank can’t make anyone pay anything after you are gone. The bank made the contract with you, the borrower, and no one else.
- – Can I lose my house to the bank? Yes, if you don’t use the home as your primary residence and keep up the maintenance or don’t pay the insurance and property taxes, then you could get stuck having to pay the loan back all at once. It’s called making the loan due.
- – What if I can’t stay at home anymore and the loan is worth more than the property, what then, can I walk away? Yes, you can walk away. You file something called a deed in lieu of foreclosure with the bank, and you’re finished. The home goes to the lender.
There are some things to consider when using a reverse mortgage. Although you don’t have to pay a mortgage anymore, you still have to pay the taxes and insurance, and you have to keep the place up. Just because you don’t make any more mortgage payments, you still have to fix stuff like siding and gutters.
- – What if my kids or grandkids live with me, and I die, will they have to move out or can they stay? They can stay if they pay off the loan. Remember, the bank doesn’t want the house. They just want the money back. But the loan will not carry over to the next generation automatically. You borrowed the money, but it’s up to your kids or whoever is there after you die to deal with the situation, but again the bank is interested in getting the money back, not the home.
- – Wait, will my kids have to move out? Perhaps, it’s up to them to negotiate with the lender to stay after your death. Ask your kids or heirs if they want to continue living there after your gone. If they moved in with you to help you stay at home, maybe they have no intention of staying after your gone. They might say they want to live there, but perhaps they’re just humoring you until you die. If the home has structural problems or is in a lousy neighborhood, they may just want to get out as soon as possible.
Whether your heirs or grandkids or kids stay or want to buy or sell or walk away, it may depend on the market conditions at the time of your passing. Homes tend to go up in value, so there’s a chance your home will be worth more than the reverse mortgage loan amount.
- – Does it make a difference if I borrowed the money with my wife or husband? Not really, the rules and regulations are the same and apply equally. If you die first, then your wife is the surviving borrower, and then it’s up to her to deal with the reverse mortgage.
- – What if I borrowed with my husband and the time comes, and we both die, and the home is worth more than the reverse loan amount. Whatever money is remaining after the home sale goes to your heirs. The bank won’t keep any of it.
- – What if the home is worth less than the loan amount? The regulations are quite strict on this topic. Your heirs don’t pay your loan when you die. To make things easier for everyone involved, your heirs could file a deed in lieu of foreclosure to avoid the foreclosure process. An estate lawyer can help with this.
- – Who pays off the loan if the home value goes down while I live there and then die? The Federal Housing Administration (F.H.A.) guarantees the loan by the mortgage insurance you pay. They will pay it off.
When you die, the loan is due. The bank won’t take the home back automatically. That’s the time for your heirs to step up and tell the bank what they want. They will have options available. They can pay off the loan and keep the house or sell the home and keep the difference. If they plan to keep the home and don’t have the money, the lender will allow them time to get a loan of their own.
The lender should give up to six months for them to come up with the money. If they want to sell, then they should get up to twelve months in six months and then two three month extensions from the lender. If the lender decides your heirs are not making a reasonable effort to sell, then they may step in and foreclose.
The reverse mortgage industry is subject to The Department of Housing and Urban Development rules and regulations. The agency makes an ongoing offer to heirs to lessen the burden for everyone involved. Your heirs can pay off the entire loan balance, or they can pay ninety-five percent of the current market value. It sounds like a gimmick, but the rationale is sound. The bank doesn’t want to get stuck with your house. H.U.D. wants the home off of its books as soon as possible. It makes this offer to move the sale along, so your heirs could get a bargain.
- – What happens when I first start, I mean, how do I get the money or rather how much should I take? Take as much or as little as you want. Keep in mind the interest accrues on the money you take out. That means you should think about it in advance. What bills do you have to pay? If you don’t need the money, then don’t take it. It’s there if you want it or need it later on.
Evaluate what you owe. Do you have high-interest credit cards or a home repair bill or old medical bills in collections? You could use the reverse mortgage to pay off the other loans and accounts you have and save money in the process.
Remember, you don’t make any payment on the loan while you’re alive unless you want. You should be practical, though, in that if you don’t have anyone to leave money or assets to, then take all the cash at once since you don’t have to worry about payments. As long as you live in the home and follow the other rules, you can do pretty much whatever you like with the money. You could buy a car or take trips or cruise around the world. On the other hand, if you do have heirs in mind, then take as little as possible to keep the balance down.
- – I don’t have a loan at all. What is a reverse mortgage anyway? It’s almost the same as a regular mortgage, except you make no payments. The bank gives you all the money upfront or gives you a line of credit or both, and you take it from there. Once you’ve gone through the process, there’s no pressure to do anything. That means leave the money alone if you don’t need it right away or take it all depending on your situation.
Although you don’t have to make payments, you are obligated to pay the taxes and homeowners’ insurance and any special assessments that come along. You also have to keep the place maintained just like you would anyway.
- – What if I have an operation and end up in a nursing home for six or nine months, will the bank take my house? No, as long as your back in your home within twelve months, you’re safe. If, however, you end up staying in a nursing facility for over twelve months, then the loan is due and payable. If you have a power of attorney or guardian, then they will have to deal with it.
Being out of the home for over twelve months is the same situation as if you died, and the loan became due. You shouldn’t let these things happen without planning, though. Go to an estate or elder care lawyer and have them draw up some kind of living will. If you want your kids or heirs to get your home, have them go with you, so they know your intentions.
Keep in mind that if you end up in a nursing home and your health insurance runs out, then you may have to apply for Medicaid. Medicare only pays for short term nursing home care, and supplemental insurance is only that, a supplement. If you have all the money from the reverse mortgage in your other bank accounts, then it may count against you as an available asset. That means you would have to spend down all the extra money from the reverse mortgage. Even if you don’t have a reverse mortgage, many states Medicaid rules count personal homes as available assets if you’re not living there. It could turn into a real mess. You don’t want to spend all your money on nursing home care and then die.
On the other hand, if you are married and you go into a nursing home, and your spouse stays in the house, then it’s exempt from Medicaid rules. If your spouse then goes into the nursing home for more then twelve months, then the loan is due and payable.
- – Well, how much can I get? That can get complicated. There is something called the principal limit and the H.U.D. lending limit and current interest rate at the time, and your and or your co-borrowers age. It’s essential to understand the different terms and how it affects your loan amount. But most important is the terms of the loan do not change regardless of how long you live.
The amount you can get depends mostly on how much your home is worth. The lender will use H.U.D. standards and will probably get an independent appraisal. There is also something called the Growth Rate, which means the line of credit available should increase each month while you still have available credit to draw. Again this comes back to how fast you take the money out. The less you take, the less you pay in interest, and the more your credit line will increase. Another bonus is the refinance feature, which means if your home rises in value enough, you can refinance and qualify for more money. If you don’t plan to spend it right away, then leave it alone. Your heirs will thank you.
