I’m Dead, Now What? What Happens to a Home with a Reverse Mortgage

Why This Matters

It’s not fun to think about, but it’s important: what happens to your home when you pass away if you have a reverse mortgage?

Whether you’re the homeowner planning ahead or the heir left with questions, this guide explains the exact options and protections built into every federally-insured reverse mortgage.

First, the Big Myth to Clear Up

Myth: “The bank takes the house when you die.”
Fact: Your heirs have choices, and the home is still part of your estate.

The Options for Heirs

When the reverse mortgage borrower passes away, the loan becomes “due and payable.” But that doesn’t mean panic — heirs have three main options:

1. Keep the home

   • Heirs can refinance into a traditional mortgage or pay off the reverse balance with other assets.

   • Thanks to the non-recourse clause, they’ll never owe more than the current appraised value of the home.

   • Special Rule: Heirs can purchase the home for 95% of the appraised value, even if the loan balance is higher.

2. Sell the home

   • The sale proceeds pay off the reverse mortgage balance.

   • If the home sells for more than what’s owed, heirs keep the difference.

   • If probate is involved, the timeline can stretch — making early planning and proper legal structures (like Lady Bird Dees & trusts) critical.

3. Walk away

   • If the balance is higher than the home’s value, heirs can choose not to keep the home.

   • FHA insurance covers the shortfall, not the family.

Timeline & Communication

• Once the borrower passes, the lender typically gives heirs 30 days to notify them of intent (keep, sell, or walk away).

• Heirs can usually request up to 6 months of extensions (sometimes up to 12) to allow for:

  • Marketing and selling the home

  • Probate delays

  • Coordinating financing to buy the home back

• Key Tip: If the home is already held in a proper legal structure (like a revocable trust), heirs can often avoid delays and costs associated with probate.

Real Story

One of our clients, a daughter of a reverse mortgage borrower, called me in a panic when her father passed. She had read online that the bank would “seize the house.”

Instead, we walked through her options. She chose to sell, paid off the loan balance, and still walked away with $47,000 in equity for the family.

The relief on her face when she realized she had control — not the bank — was priceless.

Things to Keep in Mind

• Estate planning matters: Wills and especially trusts can minimize probate delays and costs.

• Probate can delay sales: Without the right setup, families can get stuck waiting months to access the home.

• Taxes & insurance must stay current until the loan is settled.

• 95% rule: Heirs can buy the home for 95% of the appraised value — even if the loan balance is higher.

• Heirs should talk early: Waiting until after death to learn the rules often creates unnecessary stress.

Key Takeaway

If you have a reverse mortgage, your heirs have options.
The bank does not automatically “take the house.”
Your family can:

• Keep it (including the 95% purchase option),

• Sell it (equity stays in the family),

• Or walk away — without ever owing more than the home’s value.

And with the right legal planning, you can reduce delays, avoid probate headaches, and make the process smoother for your family.

Next Steps

If you’re a homeowner, talk with your family now so they know what to expect.

If you’re an heir facing this situation today, we can help you understand your options step by step.

📅 Book a free 15-minute call here: https://interconnectmortgage.com/calendar

⚠️ Disclaimer

This content is for educational purposes only and not a commitment to lend. Interconnect Mortgage — NMLS 1720882. Check licensing at NMLS Consumer Access.