One of the most common questions about reverse mortgages is what happens to the home after the homeowners pass away. Will the bank take the house? Can it still be passed down to family? Will the heirs be responsible for the loan? These are important and valid concerns, so let’s go over what actually happens in a clear and straightforward way.
When the last surviving homeowner passes, the home becomes part of the estate or is transferred according to the homeowner’s will. At that point, there are three primary options for the heirs or estate:
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Pay off the remaining balance
This option depends on how much equity is left in the home and the financial resources available to the heirs. In some cases, a life insurance policy may be used to help with the payoff. Because reverse mortgages are FHA-insured, the amount required to repay the loan will never exceed the market value of the home—even if the housing market has declined. -
Obtain a conventional loan
If the heirs want to keep the home, they may be able to refinance it with a traditional mortgage. Many mortgage brokers are familiar with this process and can help identify the best path forward based on the situation. -
Sell the home
If there is no plan or desire to keep the property, the heirs can sell the home. The reverse mortgage loan is repaid through the sale, and any remaining equity after the loan is satisfied goes to the heirs. If the sale doesn’t fully cover the loan, the FHA insurance covers the difference—no additional money is owed.
If there are no heirs or the heirs decide they do not want the home, they are under no obligation to take further action. There is no personal liability for the loan.
It’s also helpful to know that lenders typically allow up to one year to settle the estate and manage the transition. This grace period is usually provided in three-month increments and extended as long as communication with the lender remains open and progress is being made.
Understanding the post-mortgage process helps families plan more effectively and removes some of the uncertainty that can come with estate planning. A reverse mortgage doesn’t prevent a home from being passed on—it simply adds structure to the process and allows families time to make informed decisions.
Jan Jordan and Kelsey Jorck are Reverse Mortgage Specialists serving Fort Collins, Loveland, Greeley, Longmont, Dacono, Erie, Boulder, and surrounding areas across Colorado’s Front Range. Click here to contact them and learn if reverse mortgage is right for you.