Loan is Larger Than Home Value?

How are you affected if my reverse mortgage loan balance grows greater than the value of my property?

Answer:

That depends on the kind of reverse mortgage you may have. The majority of reverse home loans today are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. An FHA-insured HECM loan is a non-recourse loan. This means that if your house is sold to repay the loan, neither you nor your family members are going to be required to pay greater than the sales price of the home. The insurance will cover any deficiency, as long as your house sells for at least 95 percent of the latest appraisal value.

Should your estate would like to retain your property after you pass away (or vacate permanently) instead of selling it, they’ll need to pay off the home loan. But they won’t need to pay off more than the house is appraised for. In case the house loan balance is more than your home is worth, they can simply have to pay 95 percent of the current appraisal value of your home. The FHA insurance will take care of the rest. (Should the mortgage loan balance is less than the value of your house, they will just pay the loan balance).

Tip:

Your estate could probably repay the required 95 % by obtaining a conventional house loan. Even so, they would still have to meet the usual conditions for obtaining a new property finance loan. These include coming up with a down payment, possessing a reliable income, and passing a credit check. Because receiving a new home loan to retain the home requires planning, it’s a good idea to talk this over with your family.

Exclusive (non-FHA insured) reverse home mortgages undoubtedly are a different story. These could have distinct loan terms. In case you have, or are looking at, a proprietary be sure you understand the terms with care.

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