Inheriting a House With a Reverse Mortgage: A Step-by-Step Guide for Heirs
Quick answer
When the last borrower passes away, a reverse mortgage becomes due and heirs typically have up to six months, with possible extensions, to act. You can keep the home by repaying or refinancing the balance, sell it and keep any remaining equity, or sign it over to the lender through a deed in lieu. With an FHA-insured HECM, the loan is non-recourse, so you never owe more than the home's value.
Inheriting a home that has a reverse mortgage can feel overwhelming, especially while you are grieving. The process is more manageable than most heirs expect once you understand the timeline and your choices. This step-by-step guide walks you through exactly what happens and how to respond.
Step One: Notify the Loan Servicer
As soon as possible after the borrower's death, contact the company that services the reverse mortgage and let them know. You will usually need to provide a death certificate and identify yourself as an heir or estate representative. Prompt communication starts the clock fairly and helps you avoid unnecessary fees or confusion.
What Happens When the Loan Becomes Due
A reverse mortgage becomes due and payable when the last surviving borrower permanently leaves the home, most often at death. The servicer sends a formal notice and orders an appraisal to establish the home's current market value. Importantly, there is no monthly principal-and-interest payment during this period, which relieves a major burden traditional mortgages place on heirs.
The Typical Timeline and Extensions
Heirs generally have an initial period of about six months to resolve the loan. If you are actively working to sell or refinance, you can usually request extensions, often in 90-day increments up to a total of about 12 months, with servicer and HUD approval. Staying in regular contact and documenting your progress is the best way to keep extensions available.
Option One: Keep the Home
If you want to keep the property, you can repay the reverse mortgage balance using your own funds or by refinancing into a traditional mortgage in your name. To keep a home that is worth less than the balance, an FHA-insured HECM lets heirs satisfy the debt by paying 95 percent of the current appraised value. Compare the numbers carefully and talk to a lender early if refinancing is your plan.
Option Two: Sell the Home
Selling is the most common choice. The reverse mortgage balance is repaid from the sale proceeds, and any remaining equity belongs to you and the other heirs. If the home is worth more than the loan balance, that difference is yours to keep, which is often the case in California's appreciating market.
Option Three: Deed in Lieu of Foreclosure
If the loan balance is equal to or greater than the home's value, or you simply do not want the property, you can sign the home over to the lender through a deed in lieu. Because the FHA-insured HECM is non-recourse, you walk away owing nothing further, and FHA insurance covers any shortfall. Your other assets and credit are protected.
How the Non-Recourse Guarantee Protects You
The non-recourse feature of the FHA-insured HECM is the heir's most important protection. It means neither you nor the estate can ever be required to pay more than the home is worth at sale to settle the loan. This single rule removes the fear that you might inherit a debt larger than the asset.
Working Smoothly With the Servicer
Keep a written record of every call, send documents by trackable mail or a secure portal, and ask for deadlines in writing. If you run into delays with probate or selling, communicate proactively and request extensions before deadlines pass. An estate attorney can be a valuable ally if the situation is complex.
Common Mistakes Heirs Should Avoid
The biggest mistakes are ignoring the servicer's notices, missing extension requests, and assuming you owe a debt you do not. Do not abandon the property or stop paying property taxes and homeowners insurance while you decide, because lapses can complicate the process. When in doubt, ask the servicer and consider speaking with a HUD-approved counselor or a licensed broker.
Key takeaways
- Notify the servicer promptly and provide a death certificate to start the process fairly.
- Heirs usually have up to six months, with extensions possible to about 12 months.
- You can keep, sell, or surrender the home; there is no monthly payment while you decide.
- The FHA-insured HECM is non-recourse, so you never owe more than the home's value.
- Keep taxes and insurance current and document everything with the servicer.
Frequently asked questions
How long do heirs have to settle a reverse mortgage?
Heirs typically have an initial six months, with possible 90-day extensions up to about 12 months total, subject to servicer and HUD approval. Staying in contact and showing active progress toward a sale or refinance helps keep extensions available.
Can I keep a house I inherited with a reverse mortgage?
Yes. You can keep the home by repaying the balance with your own funds or refinancing into a traditional mortgage. If the balance is more than the value, an FHA-insured HECM allows heirs to keep the home by paying 95 percent of the current appraised value.
What if the loan is worth more than the house?
Because the FHA-insured HECM is non-recourse, you will never owe more than the home's value. You can sell and owe nothing beyond the sale price, or sign the home over to the lender through a deed in lieu with no further obligation.
Do heirs have to make monthly payments while deciding?
No. There is no monthly principal-and-interest payment during the settlement period. You should, however, keep property taxes and homeowners insurance current and maintain the home while you decide what to do.