Sell a house with a reverse mortgage
Updated: Nov 15
Can You Sell a House With a Reverse Mortgage?
Are you wondering if you can sell a house with a reverse mortgage? The answer is yes, you can.
Selling homes with reverse mortgages isn’t all that different than a traditional sale.
Reverse mortgages have become a popular option for older homeowners who want to take advantage of the equity they have built up in their investments.
Most of the time, when you take out a reverse mortgage, you are planning to stay in the home for as long as possible. But there are instances where you need to sell. This leads people to ask how to sell a home with a reverse mortgage.
Fortunately, selling a house with a reverse mortgage is like selling any other home. You need to be aware of a few important details as you begin to move forward because, like any other mortgage – once you sell, you will need to pay off the reverse mortgage in full.
Paying off a reverse mortgage is often left to family members after a death.
It is not uncommon for a son or daughter to be left to figure out how to sell a home with a reverse mortgage due to mom or dad passing away.
Below you will find everything you need to know about selling a house with a reverse mortgage.
What is a Reverse Mortgage?
With a reverse mortgage, you gain access to cash upfront or regular installments as compensation for the value of your home.
Instead of the typical arrangement of paying your lender, the lender pays you.
This arrangement may be ideal for retirees seeking financial security while residing in their homes. Moreover, reverse mortgage holders do not have to compensate the mortgage lender following their death, nor do family members!
The Difference In Selling A Home With A Reverse Mortgage
If you want to sell your house with a reverse mortgage, look at your loan documents to determine what you have paid.
You want to know precisely what you will be required to pay should you sell your home, including all interest and fees up to the point when you make the sale.
You can contact your lender for a payoff quote telling you what it would cost to pay off your reverse mortgage.
When you know what you will need to pay, you can compare that number to what your home is estimated to be worth. It can help speak to a Realtor to get a clear idea of what your home will sell for based on your market and comparable sales in your area.
The real estate agent will perform a real estate CMA or comparative market analysis to determine the current market value.
Ideally, your home will sell for more than what you owe on the reverse mortgage.
What Happens When You Sell a House With a Reverse Mortgage?
You can sell anytime when you own a house with a reverse mortgage. Remember that your mortgage comes due when you sell any home. You must pay off the remaining mortgage balance plus any applicable interest and fees.
When your home has gone up in value, and you sell for more than the loan balance, you get to keep the equity. However, when homes decline, you may owe more than the property is worth. Selling a house with a reverse mortgage is a bit more challenging when you’re underwater.
If the property sells for its appraised value, your reverse-mortgage lender will receive the proceeds, and mortgage insurance will pay for the difference.
When you pass away, your heirs might also need to sell your house to repay your reverse mortgage.
They will not be required to repay more than the home’s value, even if they are in arrears. These provisions only apply to a Home Equity Conversion Mortgage.
A HECM is the most prevalent type of reverse mortgage. A HECM is backed via the Federal Housing Administration (FHA). A smaller percentage of private lenders offer their own reverse mortgages with their own guidelines.
What if you are underwater and your home will not sell for more than the mortgage balance?
Selling a House as a Reverse Mortgage Short Sale
You may have trouble paying for the sale if you owe more than what you can sell for. Unless you have some other source of money, like savings, to cover the sale costs, selling the home may not be possible.
Your last alternative could be what is known as a reverse mortgage short sale. This is when the balance owed on the mortgage is greater than the market value of the home.
Unlike most conventional mortgage programs, a reverse mortgage is a non-recourse loan, which means that reverse mortgage borrowers and their heirs can’t be held responsible for any outstanding deficiency beyond the home’s sales price.
As such, heirs who have inherited an underwater reverse-mortgaged home have no obligation to sell the property, as there would be no benefit other than to avoid foreclosure.
You can get more helpful information on what you need to know about reverse mortgage short sales vs. foreclosure in this helpful article.
You may benefit from speaking to a financial adviser to ensure that the plan for selling your home makes sense financially.
How to Sell a House With a Reverse Mortgage
Once you have determined that selling is viable based on what you owe and how much you can sell the home for, you can start the sales process.
Steps for selling your home with a reverse mortgage include:
Find an Excellent Real Estate Agent.
While it is possible to sell your home without a real estate agent’s help, doing so is more work than most owners are prepared for.
You can hire an agent for a commission to take care of the sale’s details – big and small.
Your agent can help you price the home competitively so you get as much as possible from the sale while avoiding pushing away potential buyers by pricing too high.
An excellent agent also knows how to market the home so that you can get the word out to the right kind of buyers.
Not all agents are equal, and you want to know that the person helping you with such a significant transaction is someone you can depend on.
Verify the agent’s references and ensure they have a recent list of homes sold.
When you find an agent selling homes close to the original listing price, you know you have someone who can price a home correctly.
Essential Traits For Real Estate Agents
It is also essential to choose an agent who is a good communicator. Many real estate agents do not possess good communication skills.
Chasing them down to get information could become a routine. One clue in an agent’s communication skills is how quickly they respond to you before hiring them.
What do you think will happen once you have signed a listing contract if they don’t get back to you immediately before hiring them?
The best Realtors will also have the best online presence, which is where homes are sold today. Pay careful attention to the agent who has exceptional photography, spends time writing creative house descriptions, and possibly offer a video tour.
If you have a reverse mortgage, the odds are you have probably not sold a home in quite a while. The real estate agent you hire is crucial to your success!
Prepare The Home For Selling.
One significant advantage of working with a Realtor is that they can tell you what things you need to fix to attract eager buyers – and what things you should leave alone.
Renovating the whole house is rarely a good investment because you will not make your money back most of the time. Working with the real estate agent, you can identify the most critical areas that need work and focus your efforts on those.
Buyers today do want homes that are in excellent shape. In real estate terms, we call it a “turnkey condition.” Many buyers don’t want to lift a finger when buying a home due to their busy lives and work schedules.
Those sellers who can afford minor improvements and repairs should do so. This makes your home far more marketable to the masses.
Staging a home becomes critical to appeal to as many buyers as possible. There are many easy ways to make your house more attractive to buyers.
Keep The Home in Good Shape For Showings.
You want to put your best foot forward for potential buyers, which means keeping your house clean and in good order. Hiring a cleaner to come in and do a deep home cleaning may be worthwhile.
Once you have removed all the clutter and cleaned up, it is crucial to maintain cleanliness to show the house as needed. You never know when the right buyer will walk through the door.
If you have a pet, keeping your place odor-free and clean is even more essential. While many of us love our pets, many buyers get turned off by pet odors. Some so much so that they will scratch the home of their list even if it meets all of their needs.
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Update The Home if Necessary
One of the most challenging discussions your real estate agent may have with you is updating your home to today’s standards.
The biggest culprits that can stop a home sale are wallpaper and carpeting that need replacement.
While you may think that someone can do these things if they like the house, many buyers do not have any vision. The dated wallpaper and old carpets can get in the way of seeing the potential in your home!
If your real estate agent tells you that the old shag carpet or dated wallpaper will get in the way of the sale, make sure you listen to them!
In my area of Harford County, MD, and other local communities, I know wallpaper can be a kiss of death in trying to sell a home. People do not like it, especially if it is old.
Nothing can change a home complexion quicker than removing wallpaper and adding a fresh coat of paint in a pleasing off-white.
Another issue you may also run into is general repairs that have been neglected. Most buyers today want turnkey properties.
They do not want to invest time, energy, or money in dealing with someone’s problems.
One of the significant hurdles you will need to be prepared for is the buyer’s home inspection. A home inspection is undoubtedly the number one roadblock to a successful sale.
More properties fall apart at the home inspection than at any other time during a real estate transaction. By being well-prepared in advance and fixing the most known issues, you can increase your odds of moving forward to the closing.
Verify if You Need a Real Estate Attorney.
Depending on your area, you may need to work with a real estate lawyer to sell your home with a mortgage.
You can talk with your real estate agent about this and see if it makes sense. You may want to speak to an attorney to ensure everything goes smoothly, even if unnecessary.
In my area of Massachusetts, hiring a real estate attorney is commonplace. I am always advising my clients to have legal representation. It just makes good business sense to be protected when buying or selling real estate.
Listen to Your Real Estate Agent.
If you choose a real estate agent, you will likely pick someone you can trust. Once you are working with an agent, if you want the best sales results, listening to your agent’s advice and following it is necessary.
If your agent recommends updating some part of the home or asks you to leave the house during showings, you should do your best to cooperate. Your agent is a professional that probably has a good deal of experience selling homes – someone worth listening to.
Usually, stubborn sellers think they know more than their agents. These are the sellers who end up having difficulty selling their property.
Selling a House With a Reverse Mortgage In Maryland
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Final Thoughts on Selling a Home With a Reverse Mortgage
Once the home sells and all existing home loans are paid off – including your reverse mortgage – you can enjoy the rest of the money from your sale.
Hopefully, this has been helpful, and you now understand what it takes to sell a home with a reverse mortgage!