Many children of reverse mortgage borrowers are pleased that their parents are able to use the equity they have accumulated to remain living in their home.  Often it is a great relief to these children that their parents are able to take care of their own needs, in fact many even encourage their parents to do so.

There are however questions that many children and other family members have as their parents begin the reverse mortgage process. The three most asked are:

1. How can I keep my parents from being taken advantage of?

Their has been a lot of news lately about mortgage fraud and unfortunately many good people have been taken advantage of.  It is only natural to be concerned for your parents to make sure they don’t fall victim to a scam.  The great thing about a FHA and HUD insured reverse mortgage is that before we can even send the loan to the lender to be underwritten; the borrower has to discuss the loan with a counselor employed by a nonprofit organization or a public agency approved by HUD.  This counseling can be very helpful to ensure your parents understand exactly what they are doing and to make sure they have all their questions answered.               

1. Once my parents pass away, what happens next?

One of the great reasons for seniors to get a reverse mortgage is there are no payments due as long as they live in the home.  As a child or heir of someone with a reverse mortgage, the same thing will apply to the estate allowing no payments for up to 12 months following the death of the last surviving spouse listed on the loan.  This will allow you to deal with the rest of the estate items and not feel pressure to sell or refinance the house.  This also allows you to sell the house at the prime time of year to get top dollar!

1. If my parents get this loan, will I loose the equity that I stand to inherit?

FHA and HUD have set up guidelines which determine exactly how much equity in the house is available to be used in the reverse mortgage.  FHA has set “lending limits” that are on a “per zip code” basis.  No bank issuing a FHA/HUD reverse mortgage can lend more than the lending limit.  This along with the mortgage insurance policy required by HUD at closing assures that their will be enough equity in the house and it will never be upside down. 

In addition to the lending limits and the equity reserve that is built into the loan, we still have natural appreciation that happens over time.  The national historical appreciation average is about 3-4% per year, so even if equity is being used up by the reverse mortgage; it is being gained by appreciation.  Although it is impossible to know for sure how much equity will be available for the heirs to inherit, it is nice to know that your parents will be better taken care of financially and will live a better quality life while they are here!