I have posted on this topic before, and recently have had more questions and visits from seniors who are concerned about their reverse mortgage balances being higher than their home's current value.
I want to go into a bit of detail, but before I do here's the answer in a nutshell:
As long as the borrower is living in the home, paying taxes and insurance and maintaing the home in good condition, there is nothing to worry about. So please, do not lose any more sleep over this or don't let your loved ones lose any sleep. All is well.
- Is this a bad thing?
- Is the lender going to call the loan?
- What about my line of credit?
- Can I sell my home?
- Will my children have to pay the difference when they inherit?
Here's the answers:
1. It's never fun to owe more than your home is worth, but you should know that an FHA Insured reverse mortgage is a non recourse loan. In fact all of the Jumbo Reverse Mortgages that I've ever dealt with are also "non-recourse" loans. Non recourse means there is no "personal" liability for the borrower. If the lender takes a loss on the loan, they cannot obtain a judgment or lien against the borrower.
2. As long as the senior homeowner occupies the home as their principal residence, pays insurance and taxes, and maintains the home in good condition the loan is not in default.
3. If you have an available balance in the line of credit for your reverse mortgage, it is available to you to withdraw. Even if the home value has exceeded your loan balance! That is not true for traditional HELOCs (nice feature for seniors, I wish they had it for me...)
4. Yes, you can sell your home. Anytime. But if it will be a short sale you will need to work with the lender. They will want to have an appraisal so that you don't "dump" the house and the sale will need to be an arm's length transaction.
5. Nope, the kids are fine. If you pass away with a reverse mortgage and the loan balance is higher than the value, your estate will need to payoff the loan. If there is no equity left, or the home is "upside down" the estate will most likely allow the home to go into foreclosure (which takes a minimum of 6 months on a reverse) and the lender will then sell the home and any loss will wind up being a claim for the lender to FHA.
Note- If the family inherits the home, and the loan is upside down, the family cannot purchase the home for the current value. Just as it is in the regular mortgage world any short sales must be "arm's length" transactions.
I hope that I have alleviated some fears and if you know of a senior who is losing sleep over their reverse mortgage or worred about whether or not getting a reverse is the right thing to do. Please direct them to my activerain blog or my linked outside blog, www.coronareverse.com where they can find links to lots of free and interesting information without any pressure.
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.