How to make sure that your heirs can keep the home when you pass

by | Nov 10, 2021 | Reverse FAQ, Reverse Mortgage, Reverse Mortgage Attorney, Reverse Mortgage FAQ | 0 comments

One of the complaints made against FHA HECM reverse mortgages is that when the last of the parents on the loan dies, the heirs will have to pay off the FHA HECM reverse mortgage within one year. They can sell the home or refinance it if they want to keep it.

The equity in the home when the reverse mortgage started was 50% of the value of the home or greater. The equity in the home will have increased faster than any unpaid interest will have increased. So there will be equity in the home. 

If one of the heirs wants to keep the home, he or she will have to refinance the FHA HECM and pay it off within a year after the last of the parents has died. But what if the heir does not have enough income to qualify for a refinance? Let’s call the heir Mary. 

If this problem is anticipated, it can be dealt with, and that is by leaving the house in a trust to multiple relatives who will hold title with Mary or for Mary as trustees and sign their names to a refinance loan.  

Another example: 

Let’s say the husband has died and the wife sees the end coming. She wants her vaccine damaged, partially disabled daughter Mary to be able to live in the home and not worry about housing. But Mary has no income.

The solution for the wife is to leave the property to a large number of trusted relatives and friends of George. It would be best to set up a family trust to hold the title. Together, the relatives and friends will have income sufficient to qualify for a refinance.

The trust might also authorize the trustees to set up a special needs trust if Mary will need it. 

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