Reverse Mortgage Home Sales

Reverse mortgages have provided a financial cushion for thousands of seniors with limited resources or income, enabling them to unlock the equity built up in their homes while still maintaining it as their residence. 

But what happens when the homeowner decides it's time to move on and sell the house? Is selling a house with a reverse mortgage even possible? The answer is yes; however, the process comes with a unique set of considerations and steps.

What Is a Reverse Mortgage? 

In a traditional mortgage, a homebuyer pays back a lender in monthly installments of principal and interest. The total amount owed decreases little by little as payments are made. 

With a reverse mortgage, the lender gives the buyer a line of credit, lump sum (up to 60 percent of the loan amount) or monthly payouts based on the amount they’re approved to borrow. The loan amount is calculated based on the value of the borrower’s home equity at the time of the reverse mortgage. The amount the borrower owes increases every month as more interest and fees are stacked on top of the principal that’s paid to the borrower. 

Since borrowers never have to make monthly payments back to the lender, the amount owed only increases, never decreases. The entire amount (principal, interest and fees) is owed when the owner permanently moves out (like moving into an assisted living facility), sells the home or passes away. 

Most lenders reserve reverse mortgages for borrowers who are at least 62 years old. 

The Sale Process: Clearing the Loan

When selling a house with a reverse mortgage, the proceeds from the sale go toward paying off the reverse mortgage loan first. The steps for selling a home with a reverse mortgage are somewhat akin to a traditional home sale, with some important differences.

• Home Appraisal: An appraisal will determine the home’s current market value, which will play a pivotal role in ensuring that the sale price can cover the reverse mortgage balance.
• Paying Off the Reverse Mortgage: Upon sale, the proceeds will first be allocated to pay off the reverse mortgage, along with any accrued interest and fees. This is mandatory and is typically handled by the settlement agent during closing.
• Surplus and Deficit: If the sale price exceeds the loan amount, the leftover funds go to the homeowner or their estate. Conversely, if the loan is larger than the proceeds from the sale, the homeowner or their heirs are not typically held responsible for covering the shortfall, assuming the reverse mortgage is a non-recourse loan, which is common. The insurance from the Federal Housing Administration (FHA) covers the difference.

Navigating Legalities and Ethical Responsibilities

Ensuring transparency and adherence to legal responsibilities is crucial when selling a home with a reverse mortgage. Clear communication with the lender, potential buyers and real estate professionals about the presence of a reverse mortgage and the associated process is essential.

• Communicating with the Lender: It's crucial to inform the lender about the intent to sell and understand any specific guidelines or requirements they have regarding the sale and loan repayment.
• Appropriate Pricing: While all home sellers want to maximize their home’s sale price, doing so is especially important for those holding a reverse mortgage that must be paid back. Working with 72SOLD may be a good option if you want to secure a higher-than-average sale price. 

Do Heirs Get Anything? 

In many cases, seniors in retirement are the ones who take reverse mortgages on a home they plan to reside in for the rest of their life. Their heirs, often adult children or grandchildren, may wonder how a reverse mortgage on a property might impact their inheritance. 

Technically, heirs can attempt to sell the home to pay off the reverse mortgage, which may or may not be financially feasible depending on what’s owed on the reverse mortgage and how much the home has appreciated since the reverse mortgage was obtained. If the beneficiaries want to keep the home, they need to refinance the amount remaining on the reverse mortgage or otherwise pay it off with their own funds. 

Should You Sell Your Home if You Have a Reverse Mortgage? 

Whether it’s deciding to move to a new place or managing an inherited property with a reverse mortgage, understanding the mechanics of the sale, and being mindful of the legal and financial implications, are paramount to navigating through the home sale process.

Maximizing the sale price of a home is always important, but it could be especially vital in scenarios where you want to sell a home with a reverse mortgage. The team at 72SOLD are in the business of getting our clients higher offers more quickly than the competition. Plus, we do it without many of the hassles home sellers traditionally associate with the process.