Your Guide to Selling a House with a Reverse Mortgage
Selling a house with a reverse mortgage isn’t as simple as selling one with a traditional mortgage. But when you know what to expect you can successfully navigate the process.
A reverse mortgage can be a helpful financial tool for senior homeowners, but it adds another wrinkle to the process of selling your home. While it’s similar to selling a home with a traditional mortgage, there are some differences. It’s important to know as much as you can at the start. Here’s how to successfully navigate selling a house with a reverse mortgage.
Can I sell a house if I have a reverse mortgage?
In a nutshell, yes. Although the arrangement with your lender is different than it would be with a traditional mortgage, there are no restrictions on selling. With a traditional mortgage, the homeowner makes payments to the lender and builds equity each month as the loan is paid down; with a reverse mortgage, the lender makes payments to the homeowner and the homeowner loses equity and increases debt each month. But this doesn’t mean that the homeowner can’t sell when they’re ready to.
What should I consider before selling a house with a reverse mortgage?
You can sell when you want, but when you do, your loan, interest and any fees must be paid back. This will eat into your home equity, so you won’t get the full amount of your equity when you sell. There will also be the routine expenses of any real estate transaction, like agent and attorney fees. Some considerations include:
Is your loan balance more or less than what your home is worth?
When you sell a house with a reverse mortgage, you’ll be on the hook for the loan balance or 95% of the appraised value, whichever is lower. If your loan balance and fees are less than what you get for your home, you can pocket the difference. However, if your loan balance is more than the amount you sell your home for, you may end up owing money.
Do you have mortgage insurance?
If you have mortgage insurance, that should kick in to cover that remaining loan balance. Mortgage insurance is required if your down payment is less than 20 percent of the home’s purchase price or you have an FHA or USDA loan, and it protects the lender or titleholder against defaults or shortfalls such as this.
Is the timing right?
Timing is everything. You might want to think twice about selling if you’ve only had your reverse mortgage for a few years. Reverse mortgages can have a laundry list of fees which you will have to pay, and you may not have as much equity as you think.
The market is a big issue too. If your home has lost value and is worth less than the balance owed, selling may be less appealing. Of course, circumstances may require you to sell regardless—if you need to go into an assisted living facility, for example.
Before deciding to sell, run the numbers to determine if you have enough home equity, savings, or insurance coverage to meet your financial obligations.
Preparing to sell a house with a reverse mortgage—first steps
- Let your lender know that you want to sell your home: The sooner you find out from them what you owe, the better for your planning purposes.
- Get an official payoff quote in writing that tells you what’s needed to settle the debt and close the account.
- Get anappraisalso that you’ll know your home’s fair market value.
- Note that this is not the time to DIY: Enlist the help of a real estate lawyer to guide you in this process. You can hire a traditionalreal estate agentor choose an alternative likeSundae, a marketplace that connects homeowners to cash investors who compete to buy homes.
Alternatives to selling a house with a reverse mortgage
If selling turns out not to be ideal because you won’t walk away with enough money to make it worthwhile, figure out a Plan B. Ask yourself, “what’s my motivation for selling?” and consider these alternatives:
Seek out financial assistance
If you can no longer afford the maintenance and taxes on your house, investigate what kind of help from your city or state you might qualify for as a senior. For example, you could be eligible for rebates for property taxes or inexpensive home improvement loans.
Enlist help at home
Maybe it’s not about money, but your health is declining, and you need care. Consider hiring someone to provide in-home support or having a family member move in to help. Check with your local aging-services agency as they may be able to connect you with free or low-cost services.
Are there any penalties if I sell my home with a reverse mortgage?
No. You own the title. If you have a home with a reverse mortgage, you can sell your home and repay the loan whenever you like and incur no penalties.
What happens to the money once I sell my home that has a reverse mortgage?
Once your home is sold, the proceeds from the sale will be used to repay your mortgage balance. Any liens and closing costs must also be paid. With a bit of luck there will be something left to help you as you start a new phase of your life. Typically, once your home is sold, you’re required to pay off your mortgage immediately. But it depends on your contract. You might have six months from the sale date to pay off your loan and maybe even a couple of three-month extensions.
What if my home has lost value?
It’s always bad news if your home has lost value. Chances are, you won’t have to come up with the difference if your home’s sale doesn’t cover what you owe, because if you have mortgage insurance, it will save the day by paying the balance. Even so, you will leave the transaction empty handed.
How much will I repay on a reverse mortgage when I sell the property?
You can satisfy the terms of a reverse mortgage by paying the full amount owed on the loan, or 95% of the current appraised value of the property, whichever is less.
How long after the homeowner’s death does a house with a reverse mortgage have to be sold?
According to theConsumer Financial Protection Bureau, when you and any co-borrower or eligible non-borrowing spouse die, your reverse mortgage loan is due and payable. Heirs have 30 days from receiving the due and payable notice from the lender to either buy, sell, or turn the home over to the lender to make good on the debt. In some cases, heirs may have up to six months to pay, depending on the contract.