I was asked the question, “Is it possible - or even a good idea - to put the house in the name of an elderly relative who lives with the family, then have that relative obtain a reverse mortgage?”
The idea is to use your home to stay in your home.
People are always looking for creative ways to stay in their homes. My understanding is that the same rules apply to a reverse mortgage as apply to a conventional mortgages. Once you Quitclaim the property to the elderly relative (62 years or older), you have to wait 12 months before applying for a reverse mortgage. And the older relative has to live with you!
If the elderly relative lives with you, and you have waited a year you can apply for a reverse mortgage loan if the mortgage balance if no more than 65% of the home’s value. With a reverse mortgage the homeowner retains title to their home. The lender adds a lien on the home for the amount of the loan.
When the person dies or moves out of the home as their primary residence the heirs (if the person dies) will inherit the home, and will be required to pay off the lien. The heirs can decide if they want to pay off the loan , or sell the home. When the heirs pay off the loan, the interest is tax deductible. If they sell the home for more then what is owed on the reverse mortgage they get to keep the rest of the money.
The amount of the reverse mortgage loan depends on the age of the person, current interest rate, and appraised value of the home. The reverse mortgage can be paid in four different ways: a lump sum at closing, equal monthly payments, equal monthly payments for a fixed amount of years, or a line of credit. And you can have combinations of these type of payments.
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