Jackie’s mother, Pat, was a strong woman. When she passed away at age 79, she was still living in the family home – with a little outside help, of course. Jackie was surprised to learn that her mother had taken out a reverse mortgage several years before. As executor and heir of the estate, she wasn’t sure what to do about the reverse mortgage.
Reverse Mortgages In Arizona – What Is It About?
When we say ‘mortgage’ we usually mean the loan the people get so they can pay for a house or other real property.
A reverse mortgage does the opposite: It’s a loan a homeowner takes out against the value of their home. Instead of paying the bank as with a regular mortgage, the homeowner receives either a lump sum, monthly payments, or a line of credit. The loan is not paid back until the sells the home, moves, or passes away. A reverse mortgage loan could be considered in default if the homeowner doesn’t pay their property taxes, keep the home in good shape, or stops paying for insurance.
Reverse Mortgage Eligibility In Arizona
Not everyone can get a reverse mortgage. Obviously, you have to have a home, but there are factors involved, including:
- The borrower must be at least 62 years of age.
- Either the borrower must own the home outright or have a very low balance on their mortgage, hold the title to the home, and use it as their principal residence.
- The borrower can’t be delinquent on any federal loan and must be able to pay any house-related fees, taxes, and insurance.
- The home must be single family or a two-to-four unit home that the borrower lives in.
- And, finally, the borrower must attend information sessions approved by the U. S. Department of Housing and Urban Development.
Reverse mortgages will not be given for rental homes, vacation homes, or primary residences that have been empty for at least a year.
Repaying The Reverse Mortgage Loan
Typically, the loan must be repaid within six months after the borrower’s death. If Pat had been married, and her spouse had also been a borrower, he would have continued living in the home. Upon his death, his heirs would have dealt with the loan.
However, as executor, it’s up to Jackie to deal with the reverse mortgage loan. But what does she need to do as she begins the process of settling her mother’s estate?
- She could sell the home and use the proceeds to pay off the loan. Mortgage interest will continue to accrue. Jackie must also pay insurance on the property, along with any other fees. However, Pat’s estate gets to keep any money left over after the mortgage is paid from the sales proceeds.
- Keeping the property is an option. To pay off the balance of the loan, Jackie will have to arrange financing or use her own money.
- In situations where the property is worth less than the loan, heirs will often just hand the house over to the lender. Jackie has to consider what’s best for the estate. If the property is not an asset worth keeping, she can walk away. Reverse mortgage loans are usually “non-recourse” loans. If Pat’s loan balance is higher than her home’s value, her estate is not responsible for making up the difference.
Have Questions About Reverse Mortgage Loans & Your Estate?
Reverse mortgage loans can be a great help to some people. It’s still important, though, to consider how a reverse mortgage will affect your estate.
At Keystone Law Firm, we use our estate planning experience to help clients like you. Call us at (480) 418-8448. We offer services for clients throughout Arizona, including Chandler, Gilbert, Sun Lakes, Tempe, Phoenix, Mesa, Scottsdale, and Apache Junction.