By Tyler Plack
Tyler Plack is the President of South River Mortgage. Tyler holds an active FHA Direct Endorsement (DE) underwriting certification and is the author of The Retirement Solution: Maximizing Your BenefitTyler is a seasoned entrepreneur and real estate investor renowned for his expertise in reverse mortgages and his commitment to addressing seniors' equity challenges. Tyler brings a unique perspective to his ventures, having built several successful companies throughout his career. His insights are frequently sought by industry publications, where he is recognized for his vast knowledge in the realm of reverse mortgages.
An avid investor in income-producing properties, Tyler is dedicated to helping seniors navigate their financial needs with compassion and expertise. When Tyler is not helping solve America's retirement crisis, he is a skilled pilot flying airplanes for fun.
How to Buy A Grandparents Home with a reverse martgage
If your grandmother has a reverse mortgage and is now in assisted living on Medicaid, you may be wondering:
Can I buy the home?
Can she give me a gift of equity?
Will that affect her Medicaid eligibility?
These are smart questions to ask before making a move.
Let’s break this down in simple terms.
First: What Happens When a Reverse Mortgage Borrower Moves Out?
Reverse mortgages require the borrower to live in the home as their primary residence.
If your grandmother has been out of the home for 12 consecutive months — for example, living in assisted living — the reverse mortgage becomes due and payable.
That means the loan must be paid off, usually by:
- Selling the home
- Refinancing into a new mortgage
- Paying off the balance in cash
If you already have a payoff statement around $126,000–$127,000, that’s the amount that must be satisfied.
Can You Buy the Home If It’s Worth More?
Yes, you can buy it — even if the home is worth more than the reverse mortgage balance.
If the home appraises for more than what’s owed, the difference is equity.
For example:
- Appraised value: $300,000
- Reverse mortgage payoff: $127,000
- Equity: $173,000
That equity belongs to your grandmother (or her estate).
Now here’s where it gets more complicated.
What Is a Gift of Equity?
A gift of equity is when a seller sells a home to a family member for less than its market value and “gifts” part of the equity as the buyer’s down payment.
This is allowed in many traditional mortgage situations between family members.
But just because it’s allowed under mortgage rules does not mean it’s safe under Medicaid rules.
And that’s the key issue.
Will a Gift of Equity Affect Medicaid?
Possibly — and this is where you need to be careful.
Medicaid has strict asset and transfer rules. When someone applies for or receives long-term care Medicaid, the state can:
- Review asset transfers
- Apply a look-back period (usually 5 years)
- Impose penalties for gifts or undervalued transfers
- Place a lien on the property
- Seek estate recovery after death
If your grandmother sells the home for less than fair market value — even to you — Medicaid could treat the difference as a gift.
That gift could:
- Trigger a penalty period
- Affect her eligibility
- Delay benefits
- Create repayment obligations
Mortgage lenders do not give Medicaid advice. Loan officers can structure the purchase, but they cannot protect you from Medicaid consequences.
This is not just a mortgage question. It is a Medicaid planning question.
Is There Likely a Medicaid Lien?
In many states, Medicaid places a lien or estate recovery claim on the home.
Even if there is no visible lien yet, the state may seek repayment from the estate after death.
Before you move forward, you should confirm:
- Whether a Medicaid lien exists
- Whether estate recovery will apply
- How much Medicaid may claim
This can change the math completely.
Are You Eligible for a Reverse Mortgage?
(Find out in 60 seconds)
Can You Still Buy the Home?
Yes — but the safest route is usually:
- Purchase at fair market value
- Use a traditional mortgage
- Pay off the reverse mortgage
- Allow proceeds to go through proper channels
If there’s equity above the reverse mortgage payoff, those funds may need to be used for your grandmother’s care or handled under Medicaid rules.
Trying to “discount” the purchase price through a gift of equity without understanding Medicaid consequences can create problems later.
What Should You Do Before Moving Forward?
This is one of those times where professional advice is worth it.
You should consider speaking with:
- An elder law attorney
- A Medicaid planning attorney
- The state Medicaid office (without sharing identifying details at first if you prefer)
A short consultation could prevent major financial trouble.
The Bottom Line
Yes, you can buy a grandparent’s home that has a reverse mortgage.
Yes, gift of equity transactions are allowed in many family sales.
But when Medicaid is involved, asset transfer rules change everything.
Before structuring a deal, make sure you understand:
- The reverse mortgage payoff
- The home’s appraised value
- Any Medicaid liens
- The 5-year look-back period
- Estate recovery rules in your state
This protects both you and your grandmother.
Final Thoughts
When family, long-term care, and real estate come together, things can get complicated fast.
You’re doing the right thing by researching before acting.
If you’d like to understand what a refinance or purchase might look like on the mortgage side — including payoff amounts and loan options — the easiest next step is to run the numbers.
You can check your eligibility and see an instant estimate using our free reverse mortgage calculator.
There’s no pressure and no obligation.
Just clear numbers to help you make an informed decision.
Get your instant quote today and see what may be possible.
Frequently Asked Questions
Can I buy my grandmother’s home if it has a reverse mortgage?
Yes. You can buy the home, but the reverse mortgage must be paid off at closing. That usually means using your own mortgage loan or cash to satisfy the balance.
Can she give me a gift of equity for the down payment?
Possibly under mortgage rules. However, if she is on Medicaid, selling the home for less than fair market value may be treated as a gift. That could affect her Medicaid eligibility. Always check with an elder law or Medicaid attorney first.
Will Medicaid take the proceeds from the sale?
In many states, Medicaid may seek repayment for long-term care costs through estate recovery. If there is equity after paying off the reverse mortgage, those funds may need to be used for her care or may be subject to a Medicaid claim.
Is there a Medicaid lien on the property?
There may be. Some states place liens during the recipient’s lifetime, while others pursue recovery after death. It’s important to confirm this before closing on the sale.
What happens if the home is worth more than the reverse mortgage balance?
The reverse mortgage gets paid first. Any remaining equity belongs to your grandmother or her estate — but Medicaid rules may determine how that equity is handled.
Can I just refinance the reverse mortgage into my name?
You cannot assume a reverse mortgage. If you want to keep the home, you must get a new traditional mortgage to pay off the reverse mortgage balance.
What if the home has been vacant for nearly a year?
If the borrower has been out of the home for 12 consecutive months, the reverse mortgage is typically due and payable. Timing matters, so it’s important to plan ahead.
What is the safest way to structure the purchase?
The safest path is usually to buy the home at fair market value, pay off the reverse mortgage, and work with an elder law attorney to ensure Medicaid compliance.
