Can I Sell My House With a Reverse Mortgage? Your Expert Guide

Yes, absolutely! You can sell your house even if you have a reverse mortgage. In fact, selling your home is one of the most common ways to repay a reverse mortgage loan.

Understanding the Reverse Mortgage Landscape

Let’s face it: reverse mortgages can seem a bit mysterious. They’re often misunderstood, shrouded in complex jargon and confusing scenarios. But here’s the key takeaway: they’re simply a loan secured by your home equity, specifically designed for homeowners aged 62 and older. The Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration (FHA), is the most common type of reverse mortgage. Think of it as borrowing against your home equity without having to make monthly mortgage payments. The loan, plus accruing interest and fees, becomes due when you move, sell the home, or pass away.

Now, the burning question: how does selling fit into this picture? When you decide to sell, the proceeds from the sale are used to pay off the reverse mortgage. Anything left over, the equity you’ve built, is yours to keep. It’s that simple, at least in theory. But as with any significant financial transaction, there are details you need to understand to navigate the process successfully.

Selling Your Home with a Reverse Mortgage: The Process

The process itself mirrors a standard home sale, but with the added step of settling the reverse mortgage.

Step 1: Determine the Market Value

The first step, just like any other home sale, is to determine the fair market value of your property. Hire a qualified appraiser or consult with a reputable real estate agent to get an accurate assessment. This is crucial because the sale price needs to be sufficient to cover the outstanding reverse mortgage balance, including all accrued interest, mortgage insurance premiums, and servicing fees.

Step 2: List Your Home

Once you know the market value, work with your real estate agent to list your home for sale. Ensure your agent is familiar with reverse mortgages or willing to learn the specifics. Transparency is key; disclosing the reverse mortgage upfront can avoid surprises later in the transaction.

Step 3: Negotiate Offers

As offers come in, carefully evaluate each one. The goal is to get the highest possible price while considering other terms, such as contingencies and closing dates.

Step 4: Close the Sale

At closing, the title company will handle the payoff of the reverse mortgage. The proceeds from the sale will first be used to satisfy the outstanding loan balance, including all accrued interest, FHA mortgage insurance, and other fees. Any remaining funds are then disbursed to you, the seller.

Step 5: Confirm Payoff

After the closing, request a final statement from the reverse mortgage lender to confirm that the loan has been paid off in full. Keep this documentation for your records.

Potential Challenges and How to Overcome Them

While selling a home with a reverse mortgage is generally straightforward, potential challenges can arise:

• Underwater Situation: The most significant challenge occurs when the outstanding loan balance exceeds the sale price of the home. This is known as being “underwater.” While HECM loans have a non-recourse feature preventing the borrower (or their heirs) from owing more than the home’s value at the time of sale (or transfer), it can still impact the proceeds available to you. It also becomes important to be realistic about the market value and, potentially, negotiate with the lender if a shortfall seems likely.

• Accurate Loan Balance: Getting an accurate and up-to-date loan balance is essential. Request a statement from your lender well in advance of the anticipated closing date. This statement should detail the principal balance, accrued interest, mortgage insurance premiums, and any other applicable fees.

• Working with Heirs: If you have inherited a property with a reverse mortgage, the same principles apply, but it’s essential to understand the timeline. Heirs generally have several options, including selling the property, refinancing into a traditional mortgage, or paying off the loan with other assets. It is also important to understand the 95% rule. This rule specifies that if the home is sold for less than the outstanding balance, the heirs will owe the lesser of the outstanding balance or 95% of the appraised value of the home.

FAQs: Unveiling the Nuances of Selling with a Reverse Mortgage

To further clarify the intricacies of selling a home with a reverse mortgage, here are 12 frequently asked questions:

FAQ 1: What happens if the sale price is less than the outstanding loan balance?

Thanks to the non-recourse feature of HECM loans, neither you nor your heirs will be responsible for the difference. The lender absorbs the loss. However, as mentioned above, heirs selling an inherited property are generally only required to pay 95% of the appraised value of the home.

FAQ 2: Can the bank force me to sell my home with a reverse mortgage?

Yes, but only if you fail to meet the loan obligations, such as paying property taxes, homeowners insurance, or maintaining the property. Otherwise, you can live in the home as long as you maintain these obligations.

FAQ 3: What are the tax implications of selling a home with a reverse mortgage?

The sale of your home, regardless of whether it has a reverse mortgage, is subject to the same capital gains tax rules. However, if you meet certain conditions, such as owning and living in the home for at least two out of the five years before the sale, you may be eligible for a significant capital gains exclusion. Consult with a tax professional for personalized advice.

FAQ 4: How long does it take to sell a home with a reverse mortgage?

The timeline is similar to selling any other home, depending on market conditions, the property’s condition, and the effectiveness of your marketing strategy. However, factor in extra time for obtaining the final loan payoff statement from the reverse mortgage lender.

FAQ 5: Can I refinance the reverse mortgage instead of selling?

In most cases, refinancing a reverse mortgage is not feasible. Reverse mortgages are designed to be a one-time transaction.

FAQ 6: What if I want to keep the home but don’t want the reverse mortgage anymore?

You can pay off the reverse mortgage using other funds. This could involve using savings, obtaining a traditional mortgage, or exploring other financing options.

FAQ 7: Are there any penalties for paying off a reverse mortgage early?

HECM loans originated after August 4, 2013, do not have prepayment penalties.

FAQ 8: What happens to the money left over after paying off the reverse mortgage?

Any remaining proceeds from the sale are yours to keep. This is your equity in the home.

FAQ 9: Can I sell the home myself (For Sale By Owner) with a reverse mortgage?

Yes, you can. However, given the complexities involved in settling the reverse mortgage, it’s generally advisable to work with an experienced real estate agent.

FAQ 10: Can I rent out my home with a reverse mortgage?

Generally, no. The home must be your primary residence. Renting it out would violate the terms of the loan and could lead to foreclosure.

FAQ 11: Should I consult with an attorney before selling my home with a reverse mortgage?

Consulting with an attorney is always a good idea, especially when dealing with significant financial transactions. An attorney can review the sale documents and ensure your interests are protected.

FAQ 12: Where can I find more information about reverse mortgages?

The U.S. Department of Housing and Urban Development (HUD) is an excellent resource for information about reverse mortgages, specifically HECMs. You can also consult with a HUD-approved housing counselor for unbiased guidance.

Conclusion: Empowerment Through Understanding

Selling a home with a reverse mortgage doesn’t need to be daunting. By understanding the process, potential challenges, and having the right information, you can navigate the sale with confidence. Remember to consult with qualified professionals – real estate agents, appraisers, attorneys, and financial advisors – to ensure a smooth and successful transaction. Ultimately, selling your home with a reverse mortgage can be a strategic move that allows you to unlock your equity and achieve your financial goals.