Hi everyone, I’m not very familiar with all the details, but I’ll try to explain as best as I can.
Years ago, my dad took out a reverse mortgage on his home, which was fully paid off at the time. Over the years, the reverse mortgage balance has grown and now exceeds the home’s current appraised value.
My husband and I are considering buying the house while my dad is still alive (he’s very elderly). My main question is: if my parents sell the home to us, would they need to list it for the amount owed on the reverse mortgage, or could it be listed at the appraised value?
Additionally, if my dad passes away, how would the process work in that scenario?
This situation has been really stressful for our family, and I’d like to keep the home if at all possible. I appreciate any insight you can share and will do my best to answer any questions you might have. Thanks!
Amari said: @Weston
Thank you for sharing this! I’ll reach out to some recommended lenders tomorrow to discuss options, but this gave me a bit of hope!
Glad it helped! Be cautious about advice from people who don’t fully understand how reverse mortgages work.
When a home with a reverse mortgage is sold, the balance, plus interest and fees, must be repaid. If the reverse mortgage exceeds the appraised value, the difference may have to be covered. The lender typically won’t approve a loan amount greater than the appraised value of the home, so you’d need to make up any shortfall in cash.
If your dad passes away, the reverse mortgage becomes due, and the estate can either pay off the loan, sell the property, or deed it back to the lender.
Amari said: @Zion
If the home appraises at $300k but the reverse mortgage is $350k, would we need to bring $50k in cash if we were buying the house?
Yes, if the appraised value is $300k, the lender would likely loan less than that—depending on the loan program, you might get 95% or 97% of the appraised value. The rest would need to come out of pocket to pay off the reverse mortgage.
If this is a standard HUD-backed HECM (Home Equity Conversion Mortgage), the loan includes insurance that covers any shortfall between the home’s value and the reverse mortgage balance. This means you could purchase the home at its appraised market value, even if the balance exceeds that value.
If the reverse mortgage is more than the home’s value, the difference may come from the estate. Planning is important to protect other assets. The high interest rates on reverse mortgages can make them financially challenging over time.
If $375k feels like a good deal for the area, are you sure the $300k appraisal is accurate? Appraisals can sometimes undervalue homes compared to market trends.
Riley said:
If $375k feels like a good deal for the area, are you sure the $300k appraisal is accurate? Appraisals can sometimes undervalue homes compared to market trends.
I wasn’t involved in the appraisal, so I can’t say for sure. My dad had someone appraise it, but I’m going to talk to a lender and maybe get a second opinion on the value.
