If you’re an heir on a reverse mortgage, you’ll eventually be responsible for closing the loan when the last borrower passes away. Maybe the inevitable has happened, and you’re now wondering what to do, or you’re planning. You may decide to keep the property, but can an heir refinance a reverse mortgage?
An heir can refinance a reverse mortgage. However, there are several steps an heir must take, like transferring the title into their name and contacting the lender directly. Additionally, there is a six-month time frame in which the heir can refinance the reverse mortgage.
The process of refinancing a reverse mortgage as an heir is time consuming and may be confusing. If you haven’t, or even have, prepared, it might feel overwhelming. Keep reading to learn more about the process of refinancing.
Heir’s Duties on Reverse Mortgage
The heir of a reverse mortgage has several responsibilities and obligations and deadlines ranging from 30 days to 12 months to meet them. If the deadlines aren’t met, the lender is entitled to take possession of the property. There are two crucial steps an heir must take first:
- Transfer the title of the property into their name
- Contact the original lender of the reverse mortgage
Once those steps are completed, the heir then has a few options to settle the balance owed:
- Turn the property over to the lender
- Sell the property within 12 months
- Pay the balance in cash or by refinancing within 6 months
The heir is only responsible for paying the total balance due or 95% of the property’s value, whichever is less if they decide to keep or sell the property. Whichever decision the heir or heirs makes is a personal choice.
How Heir Refinances Reverse Mortgage?
If you’re an heir of a reverse mortgage and have decided to pay off the balance owed by refinancing, then there are several steps you’ll need to take.
Discover Current Reverse Mortgage Lender
If you don’t already know the current lender, the easiest way to find out is by locating the latest mortgage statement. There are alternate options if you can’t find the latest statement:
- A credit report in the borrower’s name will likely show the lender.
- Do a title search on the property. This will reveal any liens against the house, such as in the case of a reverse mortgage.
- Wait to receive the “due and payable” letter from the lender. A lender is required to send this letter within 30 days of receiving notification of death.
The best option is to review the latest mortgage statement, if possible. This is because you’ll learn two things, who the lender is and how much remaining equity there is in the property.
Transfer the Property Title to Yourself
Transferring the title of a property to yourself can be a complicated and time-consuming process. However, this is a necessary step you must take if you’re planning on refinancing a reverse mortgage as an heir.
Depending on your circumstances, you may be required to go through probate to complete this. Contact an estate attorney to review your specific situation and determine the best course of action.
Determine How Much Pay Off
Because a reverse mortgage is a “non-recourse” loan, you’ll never owe more than the value of the home. This means that the amount you refinance will either be the balance owed or 95% of the property value, whichever is lower. You can determine this by doing two things:
- Obtaining the balance of the loan by reviewing the latest mortgage statement, “due and payable” notice, or contacting the lender directly
- Obtaining the current appraised value of the property
Once you know how much is due and the house’s value, you’ll have an idea of what you owe. Alternatively, you can contact the current lender directly and ask for assistance with obtaining the pay-off amount.
Inform Lender Intent to Pay Balance Due
After receiving the “due and payable” notice from the lender, you have 30 days to notify them of your decision. Once you notify the lender of your intent to pay off the balance, you’re required to do so within 6 months. Other deadlines after receiving this notice include:
- Obtaining an appraisal within 30 days
- Pay-off the balance within 6 months
You may be eligible to extend the pay-off deadline by up to 6 months. Again, the current lender will be able to provide you guidance if you anticipate needing additional time.
Get Pre-Qualified to Refinance into a Conventional Mortgage
It’s important to find a mortgage lender to begin the pre-qualification and approval process. There are several ways to find a mortgage lender:
- Contact your current bank or credit union
- Contact a mortgage broker
- Research online mortgage lenders
- Ask for recommendations from friends, family, or a real estate agent you trust
Once you’ve found a lender, the consultant will begin the process of qualifying and pre-approving you. They will ask questions about your income, liabilities, and employment status. Additionally, a credit check will be required to complete the pre-approval process.
After completing the above steps, the actual refinance process is similar to a normal refinance. The most important step is transferring the title into your name and becoming the legal owner. Otherwise, you may have difficulty speaking with the existing lender and refinancing into a new conventional mortgage.
Being an heir on a reverse mortgage can be incredibly complicated. Several steps should be taken if you’ve decided to keep the property and refinance into a conventional mortgage. For the easiest experience, contact an estate attorney.