Will A Reverse Mortgage Hurt My Children?
One of the main concerns among borrowers considering a reverse mortgage is the potential ramifications it may have on their children or other heirs. In a reverse mortgage, the balance of the loan (principle and interest, plus any other loan fees) doesn’t have to be repaid until the last remaining homeowner no longer uses their home as their primary residence. While not always the case, this usually happens when the borrower passes away. Therefore, the burden of paying the loan back is generally assumed to fall upon the borrower’s kids.
The idea of your children being burdened by your reverse mortgage debt is a commonly misconstrued notion. The truth is, while your heirs or estate may be responsible for handling the necessary paperwork and settling the debt legally, no actual debt is passed along to the estate or heirs. In other words, your kids’ credit scores and individual financial obligations will not be altered after you pass on.
Here’s how it normally works:
When the home is sold, the heirs or estate will use money from the sale to pay off the reverse mortgage and any associated finance charges. Whatever money is left over after the reverse mortgage has been repaid can be transferred to the heirs. Furthermore, if the home does not sell at an amount large enough to pay off the reverse mortgage, the heirs are not held personally liable. Instead, the lender will claim a loss and may request reimbursement from the FHA.
Additionally, you and/or your heirs’ other assets will not be affected by a reverse mortgage, even in the event that the balance cannot be repaid. Investments, vacation homes, automobiles and other valuable possessions cannot be seized to pay off the loan.
So, the simple answer to whether or not a reverse mortgage will hurt your children is – NO. You can rest assured that your reverse mortgage debt will not have a negative impact on your children’s finances, which is why it is such a popular mortgage program for those who qualify.
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Speaking of qualification, here’s a brief look at some of the key requirements for reverse mortgage eligibility (subject to change, contact us for the most up-to-date criteria):
- The homeowner(s) must be 62 or older.
- The home must be owned outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan.
- The home must be the owners’ primary residence.
Interested borrowers must receive consumer counseling from a HECM counselor prior to obtaining the loan. Find a counselor by calling (800) 569-4287 or visit the HUD website: https://entp.hud.gov/idapp/html/hecm_agency_look.cfm
There are generally no income or credit score requirements to qualify for a reverse mortgage.