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Can I Sell My House with a Reverse Mortgage?
Retirees who wish to remain in their homes without selling use reverse mortgages and many ask the question “Can I Sell My House with a Reverse Mortgage?”
This technique enables homeowners to access their equity without relocating.
However, what if you decide to sell your house using a reverse mortgage?
Whether you’re a reverse mortgage homeowner, supporting a family member with a reverse mortgage sale, or inherited a reverse mortgaged house, here’s what you need to know.
Understanding a reverse mortgage
The majority of reverse mortgages are home equity conversion mortgages (HECM), which are regulated and insured by the Federal Housing Administration (FHA) and the United States Department of Housing and Urban Development (HUD) (HUD).
To qualify for a HECM reverse mortgage, you must meet the following criteria:
➣ Be at least 62 years old
➣ Make the property your principal residence
➣ Own your property entirely or with a low mortgage balance
While FHA and HUD monitoring of reverse mortgages has reduced the prevalence of predatory reverse mortgages, they continue to exist.
This article will discuss FHA and HUD-backed reverse mortgages; therefore, if you have a privately managed reverse mortgage, some of the material in this article may not apply to you.
The Reverse Mortgage Process
A reverse mortgage enables you to convert the equity in your property into a lien, from which you can receive monthly payments.
Unlike a typical mortgage, which builds equity each time the homeowner makes a payment, a reverse mortgage holder loses equity each month they receive a payment.
Is It Possible to Sell a Home with a Reverse Mortgage?
Yes, it is perfectly legal for a homeowner to sell a property secured by a reverse mortgage – after all, it is your home, and you have the right to sell whenever you like.
As with a regular mortgage, you retain title to the property, but the lender obtains a lien.
When you sell, you pay the lender the remaining debt due at the closing and walk away with any remaining equity.
If you’re selling a home that was acquired through a reverse mortgage, ensure that you have sufficient equity in the property to satisfy both the loan debt and closing costs.
How Is Selling a Home via a Reverse Mortgage Different from Selling a Home in the Conventional Manner?
While the process is largely identical, there are several significant distinctions when selling a house using a reverse mortgage.
Equity is reversing direction: With a conventional mortgage, you earn equity each month as you pay down the amount.
Each month that you are paid on a reverse mortgage, you are losing equity and increasing your debt. This reduces the amount of money you’ll get upon resale.
Non-recourse loan: Because reverse mortgages are backed by the federal government, they are frequently referred to as non-recourse loans.
This ensures that neither you nor your heir will owe more than the property is worth, in other words, you cannot go underwater on a reverse mortgage home (this may not be true if your reverse mortgage is not insured by the FHA or HUD).
Due and Payable Letter: When you sell a reverse mortgage, you and the lender agree on a sale date and a fair sale price – more on this later.
Why would you want to sell your property with a reverse mortgage?
Typically, the act of selling a home secured by a reverse mortgage is initiated by what lenders refer to as a maturity event.
Your reverse mortgage becomes due whenever a maturity event occurs.
You can initiate a maturity event on your own (for example, deciding you want to sell your home).
Alternatively, a maturity event may occur automatically as a result of the homeowner’s death or illness.
Maturity occurrences necessitating reverse mortgage repayment:
➣ Making the decision to sell
➣ Death
➣ Illness that necessitates placement in assisted living or a nursing home
➣ Unpaid property taxes or homeowners’ association fees
➣ A dilapidated residence
If you’re being forced to sell your property due to a maturity event, maintain touch with your lender to demonstrate that you’re actively marketing it.
If your lender believes you are not making a concerted effort to sell following a maturity event, they may take action, such as initiating foreclosure proceedings.
How To Sell a House with a Reverse Mortgage
The process of selling a home with a reverse mortgage is similar to that of selling a home with a conventional mortgage.
1. Contact your reverse mortgage lender
As with any house sale, the first step is to call your lender to obtain an estimate of the loan payback.
This estimate will inform you of the total amount you will owe your reverse mortgage lender at the time of closing, including any costs.
Your loan payoff totals the amount borrowed, any accrued interest, and any unpaid additional charges, prorated to the date of your loan’s conclusion.
Take the following steps:
➣ Notify the lender of a maturity event within 30 days. Your lender will verify the occurrence of your maturity event.
➣ The lender then sends the homeowner or heir a notice of due and owing.
➣ Notify the lender within 30 days of receiving the letter informing you of your intention to sell the home.
➣ The lender will engage an appraiser to appraise the property.
➣ Upon sale, you will owe the reverse mortgage’s whole debt or 95% of the appraised value, if the debt exceeds the value. The additional 5% is covered by insurance.
2. Decide on a listing price.
To begin, your listing price should be determined by the balance due on your reverse mortgage, as specified in your due and payable letter.
Bear in mind that closing charges must be considered. If you are also selling for profit, take into account current market circumstances and recent sales of comparable homes in the area.
Pricing with the assistance of a real estate agent: You can engage a real estate professional to conduct comps and assist in setting pricing.
Additionally, an agent will handle showings, assist you in negotiating with your buyer, and endeavor to ensure a smooth closing.
Notify your agent immediately that you have a reverse mortgage so they can assist you throughout the process.
3. Engage the services of a real estate attorney.
Almost half of all states need you to retain the services of a real estate attorney.
Even if it is not needed in your state, having legal representation can be beneficial while dealing with a reverse mortgage, as the majority of individuals are unfamiliar with the procedure.
Additionally, if you’re handling a reverse mortgage sale on an inherited home, having an attorney walk you through the process can be beneficial.
22 states that require the use of a real estate attorney when selling a home:
Alabama
Connecticut
Delaware
the District of Columbia
Florida
Georgia
Kansas
Kentucky
Maine
Maryland
Massachusetts
Mississippi
New Hampshire
New Jersey
New York
North Dakota
Pennsylvania
Rhode Island
South Carolina
Vermont
Virginia
West Virginia
4. List and sell
Whether you’re selling independently or through an agent, advertising a home for sale with a reverse mortgage is identical to listing a home without one.
Effective listing descriptions, quality photography, and preparation for open houses and showings are all necessary tasks to assist you in locating a buyer.
5. Close and transfer funds
The title company will transfer the loan payoff amount straight to your reverse mortgage lender at the time of closing.
Verify that everything is paid in full on your closing statement. You should receive any extra revenues (fewer closing charges).
Alternatives to selling a home with a reverse mortgage
If you’ve crunched the numbers and determined that the current market value of your property is insufficient to repay your reverse mortgage, cover closing fees, and earn a profit, here are some other options.
Staying put as you age
Unless you want to profit from the sale of your house via a reverse mortgage, it is prudent to remain put. Naturally, this does not apply to individuals who are relocating for a critical cause, such as mobility limits, medical demands, or a desire to be closer to family.
Paying off the balance
After a maturity event, heirs or the homeowners themselves might pay down the remaining sum in order to maintain the home.
It typically requires alternate financing in addition to notifying the reverse mortgage lender.
If you are inheriting the property, you must still react to the lender within 30 days after receiving the notice of due and owing.
Generally, you can arrange for a payment plan. Typically, heirs are given six months to repay the obligation.
Deed in lieu of foreclosure
If you are unable to sell your home following a maturity event and do not wish to risk foreclosure, you can frequently give the property back to the lender and walk away, without the house but with no foreclosure on your credit report.
Heirs occasionally adopt this route if they believe the amount of money, they will receive from the house is not worth the aggravation of the listing process.