Mortgage Balance Larger Than Home Value

What happens if my reverse mortgage loan balance grows in excess of the value of my Lake Oswego Oregon house?

It depends upon which particular reverse mortgage you have. Most 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 as soon as your house is sold to pay off the house loan, neither you nor your family will be required to pay more than the sales price of the home. The insurance will cover any shortfall, assuming that your property sells for at a minimum 95 % of the the latest appraisal value.

If your beneficiaries plan to keep your house when you pass away (or move out once and for all) instead of selling it, they’re going to have to pay off the mortgage. However they won’t need to pay off more than the home is worth. In the event the mortgage balance is more than your property is appraised for, they can simply have to pay 95 percent of the current appraised value of your home. The FHA insurance will take care of the rest. (When the reverse mortgage balance is below the value of your property, they’ll just need to pay the loan balance).

Tip:

Your heirs might be able to repay the required 95 percent by getting a traditional mortgage. Nevertheless, they will still need to meet the normal requirements for getting a new mortgage loan. For instance , coming up with a down payment, having a reliable income, and passing a credit assessment. Given that receiving a new mortgage to keep the property requires planning, it’s smart to talk this over with your loved ones.

Proprietary (non-FHA insured) reverse home mortgages are a different situation. These can include very different loan terms. In case you have, or will be using, a proprietary loan in Lake Oswego Oregon you need to understand the provisions very carefully.