Can You Assume a Reverse Mortgage Loan?

A reverse mortgage allows homeowners, typically aged 62 or older, to convert home equity into accessible funds without monthly mortgage payments. This loan defers repayment until a specific event, such as the borrower selling the home, permanently moving out, or passing away. While reverse mortgages offer financial flexibility, they generally cannot be assumed by another party. This is because reverse mortgages are uniquely tied to the borrower’s age and occupancy, which are fundamental loan criteria.

When a Borrower Dies or Vacates the Home

A reverse mortgage loan becomes due and payable when the last surviving borrower on the loan passes away or permanently vacates the property. This permanent vacancy might occur if the borrower moves into a nursing home or other healthcare facility for more than 12 consecutive months. Upon such an event, the loan balance, including accrued interest and fees, must be satisfied. This is not an assumption process, but rather a requirement for the loan to be repaid.

Heirs or the estate of the deceased borrower typically have several options to address the outstanding reverse mortgage. One option is to pay off the loan balance to retain ownership of the home. For FHA-insured Home Equity Conversion Mortgages (HECMs), which are the most common type of reverse mortgage, heirs can pay either the outstanding loan balance or 95% of the home’s appraised value, whichever amount is less. This 95% rule protects heirs if the loan balance exceeds the property’s market value, as reverse mortgages are non-recourse loans, meaning heirs are not personally liable for any shortfall beyond the home’s value.

Heirs can also sell the home to satisfy the loan. The proceeds from the sale are first used to repay the reverse mortgage, and any remaining equity after the loan and selling costs are covered goes to the estate or heirs. If heirs do not wish to keep or sell the home, they can opt for a deed in lieu of foreclosure, voluntarily returning the property’s deed to the lender.

Lenders typically issue a “Due and Payable” notice to the estate within 30 days of being notified of the borrower’s death. Heirs are then given a period, often 30 days, to decide on their course of action. This timeframe can frequently be extended, especially if heirs are actively working to sell the home or secure financing. Communication with the lender is important throughout this period to ensure compliance and explore available options.

When Selling a Property with an Existing Reverse Mortgage

When a property with an active reverse mortgage is sold to a new buyer, the existing reverse mortgage cannot be assumed. This is because reverse mortgages are structured based on the original borrower’s eligibility, including their age and the requirement that the home serves as their primary residence. These personal factors do not transfer to a new owner.

When selling a home with a reverse mortgage, the loan is paid off from the sale proceeds. The outstanding balance, including accrued interest and fees, is settled at closing. Any remaining equity after the reverse mortgage is repaid and closing costs are covered is then disbursed to the original borrower. There is no prepayment penalty for paying off a reverse mortgage early when selling the home.

Transferring Ownership During the Loan Term

Transferring the title or ownership of a home with an active reverse mortgage to another party, who is not a co-borrower or an eligible non-borrowing spouse, triggers the loan’s “due and payable” clause. This means the entire reverse mortgage loan balance becomes immediately repayable, rather than being assumed by the new owner. The loan is tied to the original borrower’s continued occupancy and ownership of the property.

Should the original borrower transfer the property title, the new owner would be responsible for paying off the reverse mortgage balance. If the loan is not repaid, the property could become subject to foreclosure proceedings. While a borrower retains ownership of their home with a reverse mortgage, the loan terms are based on their specific circumstances.

A protection exists for an eligible non-borrowing spouse on certain HECM loans. In such cases, an eligible non-borrowing spouse may be able to remain in the home after the borrowing spouse’s death without the loan immediately becoming due and payable. To qualify, they must meet specific criteria, including being married to the borrower at the time of loan closing and continuing to occupy the home as their principal residence. This is a deferral of repayment, and the non-borrowing spouse would not receive any further payments from the reverse mortgage.