Reverse Mortgage Balance Larger Than Home Value

How are you affected if my reverse mortgage loan balance becomes larger than the value of my Portland
Oregon property?

Answer:

This will depend upon which kind of reverse mortgage you have. The majority of reverse home loans these days are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. An FHA-insured HECM loan is a non-recourse loan. This means that once your home is sold to pay back the home loan, neither you nor your family will be required to pay over the sales price of the home. The insurance will cover any deficiency, assuming that your home sells for at a minimum 95 % of the the latest appraised value.

If the estate plans to retain your home once you pass away (or vacate once and for all) instead of selling it, they’ll have to repay the mortgage. But they won’t need to pay off more than the house is valued at. If the home loan balance is greater than your property is worth, they can only have to pay 95 percent of the present appraised value of the home. The FHA insurance covers the remainder. (When the house loan balance is lower than the value of your house, they will only need to pay the loan balance).

Tip:

Your heirs might be able to pay off the required 95 % by obtaining a traditional house loan. Nevertheless, they’ll still have to satisfy the standard requirements when getting a new mortgage loan. These include coming up with a down payment, having a good income, and passing a credit assessment. Since receiving a new mortgage to retain the house usually requires planning, it’s a good idea to talk this over with your family.

Proprietary (non-FHA insured) reverse loans undoubtedly are a different story. These can include totally different loan terms. If you have, or are thinking about, a proprietary loan in Portland OR be certain to understand the terms with care.

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