Tips about Selling a House with a Reverse Mortgage

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Key Highlights

  • Selling a house with a reverse mortgage different than selling one with traditional or no mortgage
  • Big difference is owner losses equity as owner receives payments from reverse mortgage

What Is a Reverse Mortgage?

A reverse mortgage is a type of loan for seniors ages 62 and up whose net worth is mostly tied up in the value of their home.  This loan enables homeowners to convert their home equity into cash income with no monthly mortgage payments.

According to Investopedia, a reverse mortgage allows homeowners to essentially borrow against the value of their home and receive funds as a lump sum, a fixed monthly payment or a line of credit.

Instead of the homeowner making payments to the lender, the lender makes payments to the homeowner.  The homeowner retains the title to the home.  The homeowner continues to pay the property taxes on the home plus the maintenance and the insurance.  Importantly, over the life of the reverse mortgage loan, the homeowner’s debt increases and the home equity decreases.

Can a House with a Reverse Mortgage Be Sold?

Yes…and without penalty.

When selling, however, the homeowner with a reverse mortgage may not get much if any profit on the sale of the home UNLESS the home is sold for more than the reverse mortgage loan balance.  Then, the homeowner keeps the difference

Tips When Selling House with a Reverse Mortgage

  1. Tell your lender from the get-go. The lender should provide the homeowner with an official payoff quote in writing that details the balance left on the loan and the amount necessary to repay the loan if full. Remember…quotes can expire so work to pay off the loan as soon as possible.
  2. Get an appraisal on the home to determine the fair market value of the home.
  3. Hire a real estate attorney. (Some states require this.)  The attorney will help the homeowner navigate the timeline and the process to ensure no costly errors.
  4. List the property. Just as any listing, make necessary repairs and get the property in as best shape as possible in order to get as high a price as possible.  Hire a qualified, experienced real estate agent with market and marketing knowledge.
  5. Close the sale and settle the loan. Usually, homeowners are required to pay off the reverse mortgage immediately after the property sells but, depending on the contract with the lender, the owner may get six months to settle and pay off all liens and fees.

Avoid These Mistakes

  1. Selling too soon. Remember interest, closing costs and other fees take big bites out of home equity.
  2. Selling when the home value has dropped.
  3. Not sticking to your plan of actively selling the house. No stalling, No missing loan contract deadlines.

 

Thanks to Forbes.

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