Selling a House with a Reverse Mortgage
Selling a house with a reverse mortgage isn’t as simple as selling a home with a traditional mortgage — but it can be done with a little planning.
With a reverse mortgage, you borrow against the equity in your property to receive cash upfront or a stream of monthly payments. Instead of paying your bank, your bank pays you. This can be a great way for seniors to meet living expenses in retirement while staying in their home, and the reverse mortgage does not need to be paid back until the homeowner(s) die or leave the home. That includes selling.
Can you sell a house with a reverse mortgage?
Yes, you can sell a house with a reverse mortgage. Your lender cannot force you to sell the home, but you are able to sell it at any time if you choose to do so.
However, keep in mind that when you sell the home, your reverse mortgage comes due — and you’ll need to pay off the loan balance, plus interest and fees. If your home has appreciated in value and you can sell it for more than what you owe, you get to keep the difference.
However, if your property declined in value, you could owe more than what your home is worth. Selling a home with a reverse mortgage in this circumstance is a bit more tricky. If your home sells for its appraised value, your reverse-mortgage lender receives the proceeds of the sale and mortgage insurance pays for the difference.
If you die, your heirs may also need to sell your home to pay off your reverse mortgage. They will not need to pay back more than the home is worth, even if you owe more than that. These provisions only apply if you have a Home Equity Conversion Mortgage (HECM), the most common type of reverse mortgage (making up 95% of the market). These are backed by the Federal Housing Administration (FHA). Some private lenders offer proprietary reverse mortgages, which come with their own rules.
4 steps to selling a house with a reverse mortgage
1. Contact your lender or servicer
The first step in selling a home with a reverse mortgage is to find out how much you owe. Contact your reverse mortgage lender or servicer to determine how much you owe and any fees you’ll need to pay when you sell.
“I would also ask for the full payoff quote in writing,” said April Palomino, a realtor with Coldwell Banker Residential Real Estate in Winter Park, Fla. “At this time, inform them that you are planning on selling your home.”
2. Consult a realtor or real estate attorney
Your real estate agent will be able to help you determine how much your home is worth and how much you might be able to sell it for. This will help you understand if you can pay off your reverse mortgage balance.
Because the process of selling your home and paying off the reverse mortgage can be complicated, some buyers also hire a real estate attorney to ensure the reverse-mortgage payoff is handled correctly.
3. List the home for sale
If you’re working with a real estate agent, they’ll help you prepare the home for sale, take photographs, market the property and coordinate showings with potential buyers. When choosing a list price, keep in mind that you’ll need to sell the home for close to the appraised value so you can cover your existing loan balance.
4. Sell the home and settle up
Once your home is sold, proceeds will go to pay off your reverse mortgage. Double check with your lender that you are all set and have closed your account. Then you’ll receive any excess money once the loan is paid off.
What to consider before selling a house with a reverse mortgage
Selling a home with a reverse mortgage is not a simple decision. There are a number of factors that could complicate matters. Here are a few things to consider.
How long have you had the reverse mortgage? These loans come with a lot of fees so you may have burned a lot of your home equity without getting much in return if you recently took out the reverse mortgage.
Has the property lost value? If your home has lost value and is worth less than the balance owed, it can get complicated quickly. “This can prove downright difficult,” said Kelly Parks, a real estate broker with Paris Gibson Realty in Great Falls, Mont. “I’ve personally spent hours emailing and calling reverse mortgage lenders to find out the status of an appraisal in order to be able to actually list a property.” Remember, though, you won’t need to pay more than 95% of appraised value of the home.
Do you have somewhere else to live? One of the benefits of reverse mortgages is that you get to stay in your home as you age. If you’re selling, you’ll obviously need somewhere else to live. Be sure that your new home will be affordable and suitable for you as you get older. Keep in mind that paying off your reverse mortgage can reduce the amount of money you have to pay for nursing or assisted-living care.
Pros and cons of selling a house with a reverse mortgage
Pros
You won’t face a penalty. There is no penalty for paying off a reverse mortgage early.
You keep any excess proceeds. Once the reverse mortgage balance is paid off, you get to keep any money left over after selling your home. If your home has appreciated in value, this could be substantial.
Your downside is limited. If your home has lost value, you won’t have to pay the difference between your loan balance and the sale price of the home. If your home has lost value, you’ll only owe the loan balance or 95% of the appraised value, whichever is less.
Cons
The process can be confusing and time-consuming. Especially if your home has lost value, it can be complicated to work with the lender to determine a fair listing price.
You may pay real estate transaction fees. Just like selling any home, there are fees that go along with working with a real estate agent, attorney and other services.
You’ll lose some of your equity to fees. You’ll need to pay the full loan balance, plus interest and fees, when you sell a home with a reverse mortgage. This means you won’t get back the full amount of your home equity when you sell.
Alternatives to selling a house with a reverse mortgage
Not every senior homeowner has enough home equity to sell their home with a reverse mortgage and break even or possibly make a profit. Here are a few alternatives to selling a house with a reverse mortgage.
Local government programs for seniors
If you’re selling your home because you can no longer afford the taxes and upkeep, there may be a solution out there for you. Some cities and states offer property tax abatements or rebates for seniors, and others have special loans for home improvements.
Support services
If you’re considering selling the home because you are having trouble taking care of yourself, there are numerous professional caregiving services that can help you live at home. You may be able to use the money you receive from your reverse mortgage to pay for them. Your local Area Agency on Aging may also have free or low-cost services.
Have family move in with you
As long as you’re living in your home, you generally don’t have to repay the reverse mortgage. As previously mentioned, if you’re having difficulty with maintaining your home or running errands, consider asking your family for help. If you’re thinking about moving in with family, perhaps have them move in with you instead.