Home / Questions / Can I Use a Reverse Mortgage to Pay Siblings Their Inheritance?

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From America's #1 Rated Reverse Mortgage Lender

Hello ARLO,My parents passed away, and their home is free and clear. The executor was allowed to live in the home for five years, at which point they must either buy the home or sell it so the remaining siblings receive their share of the estate. After year five, can all siblings execute a quitclaim deed transferring ownership to the executor, allowing them to take out a reverse mortgage to pay everyone their fair share of the estate?

By Leslie on 02.01.2019

Hi Leslie,

If the sibling living in the home is on title and meets the income, credit, and age requirements, they could qualify for a reverse mortgage and use the funds as needed.

However, if this is the direction you choose, I recommend that the other siblings consider transferring ownership to the sibling who will retain the home. To protect everyone’s interests, you may want to:

Grant the property to the sibling who will keep the home.
Prepare a Note and record a Deed of Trust for the amount owed to the other siblings.
Use the reverse mortgage funds to pay off the existing loan and distribute proceeds to the siblings.

This approach ensures that the siblings are paid at closing, and the reverse mortgage proceeds are immediately available.

Key Considerations:

Loan Proceeds & Payout Rules
- If the property has an existing loan, the full reverse mortgage proceeds can be accessed immediately to pay it off.
- If the property is free and clear, HUD limits the initial withdrawal to 60% of the Principal Limit at loan origination.
Title & Counseling Requirements
- If all siblings remain on title when the loan begins, each must complete HUD-required counseling.
- Transferring the home to one sibling simplifies the process and ensures only they need to attend counseling.

Important Cautions:

Trust & Legal Protection
- Everyone must trust that the sibling living in the home will follow through with the reverse mortgage.
- Unexpected events (illness, death, family disputes) can disrupt plans.
- To safeguard all parties, I strongly recommend consulting an attorney to draft an agreement ensuring:
  - The loan is finalized within a set period.
  - Payments to other siblings are secured if the loan is not completed.
Will the Loan Proceeds Be Enough?
- A reverse mortgage typically provides 50% or less of the home's value.
- If multiple siblings are splitting the home’s value, a reverse mortgage may not be enough to buy out all shares.
- Make sure the expected loan amount will meet your financial needs before finalizing your plan.

Taking these steps will help ensure a smooth process while protecting all family members involved.

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