A Reverse mortgage enables you to stay in your current home during retirement by converting your home equity into cash. You may start out with that goal, but things may change. If you decide later to sell your house, you might worry whether you’ll be able to do so on a house with a reverse mortgage. The process of selling a property with a reverse mortgage can be more complicated than selling one with a regular mortgage. However, if you know how it works, you can do it. Before moving forward with selling a house with a reverse mortgage here are what you need to know.
Is it possible to sell a house with a reverse mortgage?
Homeowners with reverse mortgages have the right to sell the home whenever they choose, after all, it’s their home. The mortgage is similar to a traditional mortgage in that you remain the owner, but the reverse mortgage lender holds a lien. After selling your home, you have to pay your lender the balance due at closing, then take any remaining equity with you.
In the event you’re selling the home where you have a reverse mortgage, find out if the equity is enough to cover both your reverse mortgage loan balance and closing costs.
Selling a home with a reverse mortgage vs traditional mortgage
While the process of selling a home with a reverse mortgage is largely the same, there are a few key differences.
Difference #1 – Equity goes in the opposite direction
With a traditional mortgage, you gain equity every month as you pay down the principal. A reverse mortgage decreases your equity and increases your debt as you are paid each month. As a result, you’ll make less money after selling your home.
Difference #2 – Non-recourse loans
A reverse mortgage is a loan backed by the federal government, so it’s often known as a non-recourse loan. Essentially, this means you aren’t required to pay more than the home’s appraised value – you can’t go underwater on a reverse mortgage.
Difference #3 – Letter of due and payable
A reverse mortgage home can be sold by setting a deadline with the lender and agreeing on a fair price.
Why sell a home with a reverse mortgage?
There are a number of reasons why homeowners with reverse mortgages might want to sell their homes. For example, a homeowner may pass away or move out due to illness. In reverse mortgages, selling a home is usually triggered by a maturity event. Reverse mortgage maturity events include:
- The decision to sell
- A death occurs
- The home is in disrepair
Unpaid property taxes or homeowner’s association fees Illness requiring a move into assisted living or nursing homes. In the event of a maturity event, it’s important to prove to your lender that you are actively trying to sell your home by staying in contact. In general, the death or sickness of the primary borrowers will trigger maturity events that required reverse mortgage payoff. With a reverse mortgage, there are no monthly payments, so the reasons for foreclosure are different than with a standard mortgage.
Your lender may start foreclosure proceedings if they believe you are not actively trying to sell after a maturity event occurs.
How to sell a house with a reverse mortgage
1. Let your lender know right away
If you want to sell your house, you should contact your reverse mortgage lender as soon as possible. You should receive a written loan payoff estimate that specifies the remaining balance on the reverse mortgage loan and the amount that must be paid in full. The quotations for your loan may expire at any time, so try to pay it off as quickly as feasible. If you need additional help you can also contact your real estate agent.
2. Get An Appraisal
After getting the appraised value, you should have your home evaluated to determine its market value. If the lender accepts a lower amount because of an appraisal, it’s critical to get one immediately following the maturity event so that the mortgage can be paid off faster. You must have your property assessed within 30 days after the maturity event if you plan to sell it.
3. Consult a Real Estate Attorney
You may or may not feel the need to hire a lawyer to help with the sale. Keep in mind that almost half of all states require that you hire a real estate lawyer. A real estate attorney will help you navigate the timeline and process so you don’t make any errors that could cost you. Keep in mind that this will result in additional fees that will come out of any profits from the sale.
4. List Your Property
Spend some time making required repairs and getting the property in its best possible condition before putting it on the market to ensure you can sell it for as much money as possible. Just don’t pay too much to completely renovate; you want to make as much money as feasible, and most renovations do not result in a dollar-for-dollar increase in home value.
Keep in mind that if it seems you aren’t doing everything to sell your home, you might have a problem with the reverse mortgage lender.
5. Close the transaction and settle the loan
The proceeds of the sale of your home are used to settle your loan balance and any outstanding fees. You typically must pay off your reverse mortgage immediately after selling your home.
Depending on your contract, you may have up to two three-month extensions to pay off your loan after the sale date. All remaining funds are yours once all fees and liens are paid off.
Selling a house with a reverse mortgage: Mistakes to Avoid
Not sticking to the plan
If your lender believes you’re stalling for time and not actively marketing the sale of your property, you may be in trouble. The same is true if you fail to keep to the schedule set forth in your contract. It is crucial you understand the details of your reverse mortgage and abide by the terms in order to avoid unpleasant surprises
Selling too soon
The interest, closing costs, and other charges can all eat away at your equity. If you take out a reverse mortgage within a few years of selling your house, you won’t have time to build up enough equity to profit once the loan is paid off.
Selling when your home value has fallen
If the amount you owe on your mortgage is less than the price of your home, you won’t have to worry about making up the difference. On the other hand, if you are “underwater” on your loan (you owe more than the value of your house) when you sell, you’re sure to walk away empty-handed.
The pros and cons of selling a house with a reverse mortgage
You won’t be penalized. Reverse mortgages can be paid off early without penalty.
Any excess proceeds are yours to keep. Once the reverse mortgage balance is paid off, you can keep any remaining funds after selling your home. The increase in the value of your home could be significant.
You have a limited downside. In the event your house has lost value, you will not be required to pay the difference between your loan balance and the sale price of the house. In cases of home value loss, you will owe any remaining loan balance or 95% of the appraised value, whichever is less.
This can be a confusing and time-consuming process. Working with your lender on a fair listing price can be a challenge if the value of your home has decreased.
There may be fees associated with real estate transactions. When it comes to selling a home, working with a real estate agent, an attorney, and other services also comes with fees.
You’ll lose some equity due to fees. The balance and interest associated with the reverse mortgage will need to be paid when you sell your house. When you sell, you won’t get the full value of your home equity back.
Alternatives to selling a home with reverse mortgage loans
Aging In Place
If selling your house isn’t financially advantageous (for example, because the home’s value is too low to profit from a sale), you might opt to stay in it instead. You can remain in your house as long as you don’t trigger a maturity event that makes your loan due.
Consider in-home Care
Another reason you could be considering selling is if you need assistance with personal care and are thinking about moving into an assisted-living facility. Instead, you may choose to hire in-home support or have a family member move in with you so that you don’t experience a maturity event and can continue living in your house.
Find a program for seniors
If you’re considering putting your house on the market because you can no longer afford to keep it, contact your local municipality and inquire about specific initiatives that assist seniors manage their expenses. Some cities, for example, provide property taxes rebates or low-cost loans for home improvements.
Offer a deed in lieu of foreclosure
If you can’t sell your house before it matures and you must repay the mortgage, you might hand over the deed to the lender and just walk away to avoid foreclosure if a maturity event occurs and you aren’t able to sell the property for whatever reason.
The Bottom Line
Selling a house with a reverse mortgage is complex. There are many factors to consider, and the process can be lengthy. That’s why it’s important that you educate yourself about the pros and cons before making any decisions. This article has provided some of those details for you so that you know what to expect when selling your home with a reverse mortgage or considering alternatives to doing so. Before taking any actions related to this topic, make sure you speak with your reverse mortgage lender who understands how these loans work in order to avoid unpleasant surprises later on down the road.