Should my mother sell me her house now?

Mormorlcj asked...

My 86 year old mother took out a reverse mortgage on her home quite a few years ago, (within months after reverse mortgages were first offered). She received monthly installments and, additionally, she received "lump sum" payments several different times. Consequently, the available money "ran out" and she received her last monthly installment in 12/08. The interest, of course, continues to accrue at a frightening rate, in addition to monthly "fee" and "processing" charges that are added to the principal.

My mom has congestive heart failure, stage 4-5 renal failure, diabetes, is blind, 100% incontinent, and has severe peripheral neuropathy in both hands and feet. In order to let her live out her days in her home, rather than having to face a nursing home, I moved in with her in May/08 and have been her full-time, (24/7), caregiver ever since. Although I tried operating my small business on a very limited, part-time basis for the first couple months, it became very clear that taking care of my mom would require my round-the-clock, 7 days a week attention, so I had to close my business. Consequently, our only income is my mom's Social Security and the small amount that Medicaid pays me each month as her care provider.

At the age of 52, however, I still have to think about my own future after all of this is over. I will be reopening my business, but, of course, it will take some time to get it back up and running at a profit. I plan to stay in my mom's home, and I know that with the reverse mortgage I will need to secure a mortgage of my own in order to pay off the reverse mortage. As far as I know I will have 6 months after she passes to obtain the necessary funds, etc.

What scares me, however, is how much the reverse mortgage will continue to grow until that time that I can pay it off. Herein lies my question. Would it make more sense for my mom to sell me the house NOW, as I could more than likely get a much lower interest rate than what is accruing on her reverse mortgage? Would this be allowable under Medicaid? Would she lose her benefits if she sold her home, especially if she received any sort of a profit after paying off the reverse mortgage, no matter how small?

Thanks so much! Sorry this is so complicated, but I tried to give you all of the facts. Thanks again!

Expert Answer

Reva Minkoff is the founder and editor of the Reverse Mortgage Minute, a blog that focuses on reverse mortgage, mortgage, and real estate news. She also writes for Reverse Mortgage Daily. Prior to going out on her own, Minkoff was the editor-in-chief of Reverse Mortgage Guides.org

Thanks for your question. It is certainly an important one. Given that mortgage rates are currently extremely low and expected to rise in the future, it might be wise for your mother to sell you the home now, so you can refinance the reverse mortgage into a conventional mortgage.

However, there are two other things you should be aware of, given what you said about your situation. The first is that before your mother sells you the home, you should make sure you qualify for a conventional mortgage and have the money to make the mortgage payments. While low interest rates are available right now, many lenders are tightening credit and income requirements for borrowers. If you're unable to secure a conventional mortgage at a good rate, then it may make more sense not to sell now. Talk to a knowledgeable mortgage broker or bank to get a sense of where you might fit in, and keep an eye on the fine print.

Secondly, it is likely that your mother can sell the home while remaining Medicaid eligible, but it depends on how much money she receives and what happens to the proceeds. As long as she does not have more than $2,000 in her bank account at the end of any given month, she should remain Medicaid eligible. However, as Medicaid eligibility is hard to regain once lost and requirements can vary by state, you should check with the Medicaid office or a Medicaid specialist to make sure your mother does not lose her Medicaid eligibility if she chooses to sell you the home now.

I hope this helps. Best of luck caring for your mother and getting your business back off the ground!