What Happens If You Inherit a House With a Reverse Mortgage?

Inheriting a house with a reverse mortgage can feel like an unexpected burden during an already difficult time. You likely have many questions about your responsibilities and what options you have for dealing with the outstanding loan balance. But depending on your circumstances, you have several paths forward. 

Below, we’ll walk through your options—from keeping the home and paying off the reverse mortgage to selling the house or allowing foreclosure. We’ll also cover the typical timelines for making decisions, as well as the pros and cons of each choice. So, with that in mind, here’s what happens if you inherit a house with a reverse mortgage.

Can you inherit a house with a reverse mortgage?

As an heir, yes, you can inherit a house with a reverse mortgage. 

Reverse mortgages allow owners who are 62 or older to get cash from their home equity. They don’t need to make monthly payments. Instead, the loan balance grows and becomes due when the last borrower moves out or dies.

If you’ve inherited a home with a reverse mortgage balance that’s due, you won’t need to make monthly payments on the reverse mortgage, and you have four options for settling the debt: 

1. You can pay off the full loan balance and keep the house. The loan balance includes the amount borrowed plus interest and fees.
2. You can sell the house. If the sale proceeds are higher than the loan balance, you keep the remaining equity. If the loan balance is higher, the lender will accept 95% of the appraised value as full payment through mortgage insurance.
3. You can walk away and let the lender take the house through foreclosure if there’s not enough equity. You don’t have to pay anything out of pocket in this case.
4. If you inherit other liquid assets from the deceased owner, you can sell them and use the funds to pay off the remaining mortgage.

The most important fact to know is this…

You’re not personally liable for the reverse mortgage debt—even as an heir. The lender can only get repaid from the home’s value itself. Your personal assets are never at risk.

Now, there’s also the case of co-borrowers. 

• If your loved one had a co-borrower, like a spouse, on the reverse mortgage, that co-borrower can continue living in the home without having to repay the loan until they move out or pass away too. 
• If you’re a non-borrowing heir, you don’t have that same benefit and will need to choose one of the three settlement options available as listed above.

The lender will give you a timeline and options to repay the loan or vacate the property. Contact the lender immediately after inheriting to understand your responsibilities. Based on your inheritance, you may want time to evaluate your options or speak to an attorney.

What happens if you inherit the house as a co-borrower

If you’re a co-borrower on the reverse mortgage (such as a surviving spouse or a roommate), the situation is different from being a non-borrowing heir. As a co-borrower, you have the right to continue living in the home without having to repay the reverse mortgage loan balance immediately. 

So you don’t need to do anything. You can continue living in the home without making monthly mortgage payments. However the loan balance will continue growing over time as interest and fees accrue.

The reverse mortgage loan only becomes due and payable when the last surviving co-borrower passes away or permanently moves out of the home. At that point, you or your heirs would need to repay the full loan balance, sell the home, or deed the home back to the lender.

---

Tip

Not sure whether you’re a co-borrower? Check the reverse mortgage documents, and look for your name listed alongside the original borrower. You also would have gone to reverse mortgage counseling when the loan was taken out. If your name isn’t on the paperwork, you’re most likely not a co-borrower. In this case, different rules will apply when inheriting the home.

---

As long as you continue meeting your reverse mortgage responsibilities, including paying taxes and insurance and using the home as your primary residence, you can defer repayment as a co-borrower.

Being a co-borrower makes it easier to remain living in the home after inheriting it compared to being a non-borrowing heir. Just be sure to stay on top of your responsibilities for the reverse mortgage.

What happens if you inherit the house and you’re not a co-borrower

You’ll need to settle the outstanding loan balance if you’ve inherited a home with a reverse mortgage and you’re not a co-borrower. There are several ways to do this. 

This table outlines your options and when each might be best:

Option	Best for
Sell the home	When you don’t plan to live in the home and want to settle the debt
Pay off mortgage	When you have sufficient funds and want to keep the home
Get a new mortgage	When you lack funds to pay off the reverse mortgage in full but want to keep the home
Sell assets you inherited to pay off the reverse mortgage	When you’ve inherited property you can sell that’s of sufficient value to pay off the reverse mortgage and want to keep the home
Allow foreclosure	When there’s insufficient equity and you don’t want to retain the home
Perform a deed in lieu of foreclosure	When avoiding foreclosure proceedings is preferable to settling the debt

Sell the home

Selling the home may be the simplest route if you don’t intend to live in the inherited property. You can list and sell the home just like you would any piece of real estate, and you could then use the proceeds to pay off the reverse mortgage balance. 

Anything left over after selling the home is yours to keep. And if the home sold for less than the loan balance, you’d be OK if it sold for at least 95% of its appraised value. By law, lenders must accept 95% of the appraised value to satisfy the debt. So, if you sold the home for less than the balance, you wouldn’t owe any money. 

Pay off the mortgage

Another option is to pay off the full outstanding loan balance or at least 95% of the home’s appraised value. This involves using your own money, such as savings or investments, to settle the reverse mortgage debt.

Paying off the loan allows you to take full ownership of the home, free and clear of any reverse mortgage. This may be an attractive choice if you want to keep living on the inherited property. 

But it requires having enough liquid assets available to cover the potentially sizable reverse mortgage balance, including accrued interest and fees. You’ll be responsible for the entire loan amount, even if it exceeds what the home is worth.

Take out a new mortgage

Don’t have enough to pay off the debt in full? Another option as a non-borrowing heir is to obtain a new conventional mortgage to pay off the reverse mortgage on the inherited property. This involves applying for and securing a traditional home loan, such as a 15-year or 30-year fixed-rate mortgage.

You’d then use the proceeds from the new mortgage to satisfy the full outstanding balance on the reverse mortgage. This allows you to keep the home while replacing the reverse mortgage with a standard mortgage payment schedule you’re now responsible for.

Qualifying for a new mortgage will depend on your individual credit, income, and other financial factors. However, it provides a way to retain the inherited home without having to come up with the entire reverse mortgage payoff amount upfront. The tradeoff is now committing to regular monthly mortgage payments.

Sell inherited assets

If the deceased homeowner left cash or other assets to you—such as stocks, jewelry, or precious metals—and you’d rather have the home, you can sell these assets and use the proceeds to pay off the reverse mortgage; then you can keep the home.

Allow foreclosure

If the reverse mortgage balance on the inherited home exceeds the property’s current value, the house can’t be sold for at least 95% of its appraised value, and you don’t want to keep the home, you have the option to allow the lender to foreclose on the property, which can take around six months. 

Deed in lieu of foreclosure

You can voluntarily transfer the property title to the lender through a deed in lieu of foreclosure as an alternative to foreclosure. 

When you sign the home over to the lender, you avoid some of the hassles of foreclosure. But it has the same end result—you’re relieved of the reverse mortgage debt obligation. It’s worth considering whether you want to exit the reverse mortgage debt quickly and avoid the foreclosure process.

What to expect when you inherit a house with a reverse mortgage

Here’s what happens timeline-wise when you inherit a home with a reverse mortgage. 

Within 30 days: 

• The reverse mortgage lender will be notified of the borrower’s passing.
• The lender will provide heirs with a “Due and Payable” notice. 

You have three options once you receive a Due and Payable notice:

1. Pay off the reverse mortgage loan balance or at least 95% of its appraised value.
2. Sell the home for at least 95% of its appraised value. 
3. Sign the home over to the lender (deed in lieu of foreclosure).

Within 60 days:

• You must have ordered an appraisal for the home within 30 days of receiving your Due and Payable notice. 
• You’re generally required to pay off the loan balance within 30 days of receiving a due and payable notice. However, the lender may extend it for up to six months if you can prove you’re trying to settle the debt. 
• If you’re a non-borrowing surviving spouse, you have 30 days to request a deferral from HUD to continue living in the home.

Within six months: 

• If you don’t qualify for a deferral, the lender can initiate foreclosure proceedings around six months after the borrower’s death if the loan remains unsettled.

Within 12 months: 

• If you’re granted two three-month extensions from HUD, the entire process can take up to 12 months from the borrower’s passing.
• This gives you about a year from the borrower’s death to resolve the outstanding reverse mortgage before facing foreclosure.

FAQ

What happens to a reverse mortgage when the homeowner dies?

The loan becomes due once a homeowner with a reverse mortgage passes away. In most cases, heirs will have up to six months to either repay the balance of the reverse mortgage or sell the home to satisfy the loan. Lenders can’t demand an amount greater than 95% of the appraised value of the home, even if the loan balance is higher.

Who owns the house after a reverse mortgage?

Even after obtaining a reverse mortgage, the homeowner remains the owner of the house. As long as the homeowner lives there and is abiding by the loan terms—such as keeping up with property taxes and insurance—they retain ownership rights. Upon their passing, the property typically passes to their heirs.

Can someone assume a reverse mortgage?

In general, reverse mortgages can’t be taken over or assumed by anyone. If an heir wishes to keep the property, they must repay the reverse mortgage, often through a refinance—obtaining a new loan to pay off the reverse mortgage.

What happens if I can’t pay the loan on a house I inherited with a reverse mortgage?

If you’ve inherited a property with a reverse mortgage and can’t afford to pay the loan, there are options. One course of action is to sell the home, using the money from the sale to pay off the reverse mortgage. 

You can also turn the home over to the lender in a move called a deed in lieu of foreclosure. Either way, as an heir, you’re not personally liable if the sale of the house doesn’t cover the loan amount.