Selling A House With A Reverse Mortgage Explained

Selling A House With A Reverse Mortgage Explained

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September 26, 2022

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As a homeowner and senior living in Tampa Bay, Florida, your lifestyle plans may change.

Keeping up with rising costs of living and health care costs is becoming more challenging for seniors. Obtaining a reverse mortgage or selling your home with a reverse mortgage might be a good option if you need to free up funds for other needs. 

You or your caring family members may have more questions than answers about how to afford retirement. But there could be light at the end of this tunnel knowing you can acquire a reverse mortgage loan. 

You have the freedom to sell your home like a traditional mortgage when you are ready with no penalty.

Here’s what you need to know about selling a house with a reverse mortgage in detail.

What Is A Reverse Mortgage?

A reverse mortgage is a loan that allows homeowners 62 years of age or older to borrow against the equity in their home without having to make monthly payments. 

Your home equity decreases, while interest and fees continue to accrue as long as the reverse mortgage loan is outstanding.

In the event of a maturity event, such as the homeowner passing away, moving out, or selling the home, the loan must be repaid. Keeping up with your property taxes, homeowners’ insurance, and HOA fees are essential.

If your property taxes, home insurance, and HOA fees are not paid, your reverse mortgage lender can call the loan due on sale.

There are four types of reverse mortgages:

  1. HECM (Home Equity Conversion Mortgage).  This reverse mortgage loan is insured by the Federal Housing Authority (FHA). Homeowners whose home values are up to  $970,800 can qualify for a HECM. 
  2. Proprietary reverse mortgages. Homeowners who have a jumbo loan that exceeds the FHA limit can apply. However, you will not have the consumer protections like an FHA-insured loan.
  3. Single-purpose reverse mortgage. This is a less expensive option that designates one approved purpose such as home improvements or property tax.
  4. HECM for purchase. This home equity conversion mortgage is an option for you if you are interested in purchasing a new principal residence using your reverse mortgage proceeds.

Reverse mortgage funds can be spent however you wish with a HECM or proprietary reverse mortgage. Upon approval, you can receive the funds in the form of a line of credit, a monthly payout, or a lump sum.

Can You Sell A House With A Reverse Mortgage?

Just like having a traditional mortgage, you can sell your home with a reverse mortgage. 

Terms like home values, market values, and appraised values can be confusing. This process requires you to stay informed as a borrower with the help of a real estate agent and real estate attorney.

Because a HECM is a non-recourse loan, you will never owe more than the worth of the home. If you’re concerned about the housing market value, don’t fret. 

According to the Consumer Financial Protection Bureau, if you owe more than your home is worth, and sell for the appraised market value, the remaining balance will be paid by mortgage insurance.

Call your mortgage servicer to get your loan balance and a payoff quote to begin the process of selling your home.

Can You Sell A House With A Reverse Mortgage If The Owners Have Died?

Yes, a reverse mortgage if you pass away must be repaid to avoid foreclosure. The lender will continue to charge interest and fees until your heir(s) pay off the reverse mortgage.

If the home sells for at least 95% of the current appraised value of the property, your heirs are free and clear from the reverse mortgage debt.

How To Sell A House With A Reverse Mortgage:

If you decide to move out of state with family members or move into an assisted living facility, putting a plan together to sell your home is important. Be sure to do the following:

  • Get a payoff quote in writing
  • Get an official appraisal of your property
  • Hire a real estate agent to help set the right home price
  • Hire a real estate attorney to avoid errors
  • List and sell
  • Close and pay the outstanding loan right away

If you plan to sell your home, make sure you speak with your loan servicer since HUD overseas HECM loans, and private loan servicers may have different requirements.

What Happens To The Money When You Sell A Home That Has A Reverse Mortgage?

Traditional mortgages allow you to pay down your mortgage balance over time. A reverse mortgage pays you monthly or in a lump sum. A reverse mortgage increases debt.

It is possible that you may deplete your equity. The balance and interest on a reverse mortgage must be repaid. Your heirs will receive any money that remains after the home is sold.

Mistakes To Avoid When Selling a House With a Reverse Mortgage

When planning to sell your home, always consider the timing.  You’re not going to get the full equity from the sale after receiving the equity as a line of credit with a reverse mortgage.

However, consider the fees associated with the loan and current home value before putting it on the market. You don’t want to put the home on the market too soon.

Avoid costly closing costs and fees by adhering to the deadlines specified in your contract with your lender to sell your home.

Alternatives To Selling A Home With A Reverse Mortgage

It may be beneficial to get financial assistance from a program for seniors that assists in paying your property taxes, home insurance, or other expenses.

Reverse mortgages may not be the best option for you for various reasons. A deed in lieu of foreclosure can relieve you of the stress of mortgage payments.

A Deed in lieu is simply a way to return the home to the lender without any further obligation.

Home Loan Experts

Now you know that acquiring a reverse mortgage and selling your home later in life is not a penalty. You can always sell your home.

If you’re looking for a way to secure your financial future and gain the freedom of retirement, a reverse mortgage may be right for you. 

Our team of home loan experts is here to help make the process as smooth as possible for you. We can answer any questions you have and walk you through every step of the application process. 

Don’t wait! Apply for a loan today!

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