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If you’re a homeowner with a reverse mortgage, you likely have some questions. What do you do when it’s time to move? When your loan comes due? What if you need – or want – to live in a retirement community instead of your current home? Maybe you’ve simply changed your mind and want to retire somewhere warm, or in a city that’s closer to your family.
A reverse mortgage is a loan that allows you to borrow against the equity you’ve built in your home. Most lenders require that you remain in the home as your primary residence as a condition of the loan. So when it’s no longer possible or practical to do so, you’ll need to consider your home selling options.
In this guide, we’ll cover options available to you when it’s time to sell a house with a reverse mortgage.
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Can I Sell My Home with a Reverse Mortgage?
The simple answer to this commonly asked question is yes! You can absolutely sell your home with a reverse mortgage, and there are even potential benefits to doing so. You may be faced with any number of life events that led you to this decision, but the most common are that:
- You have borrowed the full amount of equity available
- A loan signer dies
- You need to move to an assisted living or nursing facility
- You have unpaid bills, such as taxes or even Homeowner’s Association dues
- You simply want to sell your home and retire elsewhere
“Maturity event” is the term used to describe a situation in which your reverse mortgage automatically comes due. Each of the scenarios above is an example of a maturity event. When any of these happen, your reverse mortgage is due.
Chances are, you’ll be unable to pay your mortgage off in full. That’s why many opt, instead, to sell their home. If you’re faced with a maturity event, don’t worry! You can sell your home, pay off your reverse mortgage and still retire comfortably.
We mentioned that there might be benefits to selling your home. First, if you sell your home for more than the balance of your reverse mortgage, you keep the excess proceeds. Secondly, should you choose to sell, your heirs will not inherit the debt of your loan. This reality can give you a bit of peace of mind in your retirement.
So how do you sell a home with a reverse mortgage? Let’s break down the steps to selling your house and retiring in the way you would like.
Steps to Selling a House with a Reverse Mortgage
Selling your home with a reverse mortgage is very similar to selling a house with a traditional home loan. There are steps you’ll need to take in either case to ensure the process goes smoothly, including contacting your current lender and possibly even communicating with a real estate attorney.
1. Contact the Mortgage Lender
The first step to selling a home with a reverse mortgage is to contact your current lender. You’ll want to get, in writing, a payoff amount for your current loan. Remember that the sale of your home is critical to paying off the loan as well as paying for any closing costs on the sale, so keep this in mind when you set your listing price.
When you contact your lender, let him or her know about your maturity event. If possible, do so 30 days prior to the event. The bank will then send you a notice called a due and payable letter detailing precisely what you owe on your reverse mortgage. They will also tell you exactly how long you have to repay your loan.
2. Find a Good Real Estate Agent
The next step to selling your home is to find a reputable real estate agent. Take your time in researching your agent. Check reviews online, contact friends you know who have used a real estate agent, and ensure your agent is licensed to work in your area.
The rapport you have with your real estate agent is essential, as well. Your agent doesn’t have to be your friend, but you should feel comfortable with him or her. Choose a real estate agent you think you can work with throughout the entire sales process.
It’s a good idea to interview your real estate agent as well. Ask the important questions to find out whether he or she has experience in listing and selling homes with reverse mortgages. Most agents will have references; don’t be afraid to speak to those people to get an idea of how well an agent suits your needs. After all, you don’t want to be in the situation where you have to fire your real estate agent after your home is on the market!
3. Consult a Real Estate Attorney
In many states, it’s a requirement that you have a real estate attorney to assist in the sale of your home. Even if you don’t live in a state where this is a requirement, hiring a lawyer is a good idea. Selling a home with a reverse mortgage is similar to selling a home traditionally, but there are a few differences an attorney will help you navigate.
You’ll want to “vet” your attorney in the same way as you would your real estate agent. You can also research their credentials on your state’s Bar Association lookup.
4. List the Home for Sale
It’s time to list your home! Remember that the selling price of your home should ideally net you a profit so you are not selling for a loss. Be sure to take into account your payoff amount as well as any legal fees, closing costs, and other costs you may accumulate during the sales process.
The goal is to profit from the sale of your home, not merely pay off your reverse mortgage. Optimally, you will sell your home at a price that will allow you to do so.
Remain in close contact with your real estate agent to ensure your home is listed in the most efficient way possible. Hire a photographer if your agent doesn’t provide one and take quality pictures. Explore the many avenues available to you for listing outlets, including the MLS and online.
5. Sell the Home
You’ve done it. You’ve sold your home! The company which handled your closing will send payment directly to your reverse mortgage lender. Be sure to check that all is in order. Your reverse mortgage should be paid in full, any liens removed and the math should add up so that any proceeds are sent to you.
Alternatives to Selling a Home with a Reverse Mortgage
In some cases, you may decide that selling your home is not right for your lifestyle, budget, or your desires for retirement. If this is the case, you should consider the alternatives to selling a house with a reverse mortgage.
Let’s explore some of the options available to you should you choose to stay in your home past a maturity event.
Aging in Place
If you don’t need to move, one alternative to selling your home is obvious – simply stay where you are. This may be a good option for you if your home is close to family, you don’t have pressing health concerns and you are independent.
Retirees who are healthy and independent have a variety of reasons they cite for desiring to move. These reasons may include:
- Wanting a smaller residence that’s easy to maintain
- Wishing to be in the same geographical area but in a more populous neighborhood
- Wishing to be in a less populated neighborhood
- A home with less outdoor area to care for
Of course, your needs are unique to you. Carefully weigh the pros and cons of initiating a maturity event before you do so. If you won’t profit from the sale of your home, it may be best to age in place.
Paying Off the Reverse Mortgage Balance
If you have the means to do so, another alternative to selling your home is to pay off the balance of your reverse mortgage. Should you choose this option, you’ll need to contact your lender to receive a payoff balance. When the due and payable letter arrives, remain in contact with your lender until you receive notice that your loan is paid in full.
Paying off a reverse mortgage in full is an excellent option for heirs. For instance, if you inherited a home with a reverse mortgage as well as additional assets, the simplest course of action would be to use those assets to pay off the home loan.
Again, it will be critical to examine your finances when considering this option. If you pay off your loan, will you have the means to sustain yourself? Speak with a financial advisor if you have questions or concerns.
Deed in Lieu of Foreclosure
Imagine you’ve reached or initiated a maturity event but simply are unable to sell your home. You’re at risk of foreclosure; is there a way to avoid that?
Deed in lieu of foreclosure is precisely what the term would imply. You deed your house back to your reverse mortgage lender and transfer ownership of your home to that entity. You’ll need to find other living accommodations, but you’ll walk away without a foreclosure on your record.
Maintaining a history free of foreclosure is important for obvious credit reasons. Most notably, however, it will be critical should you ever choose to buy another home. Some retirees do decide to purchase a smaller, more easily maintained home. A foreclosure will likely eliminate this possibility.
Common Questions About Selling a Home with a Reverse Mortgage
Selling any home isn’t a decision to take lightly, much less a home with a reverse mortgage. We know you probably still have questions, so we’re going to share answers to some of the most commonly asked.
How Long Do You Have to Sell a House with a Reverse Mortgage?
The amount of time you have to repay your reverse mortgage will vary slightly from lender to lender. However, you will be limited so it’s best to have a plan in place before you initiate a maturity event.
A typical home equity conversion mortgage (HECM) lender will require that you repay your mortgage within six and 12 months of your maturity event. You may be able to file for extensions but it’s crucial that you keep in communication with your reverse mortgage lender.
Your lender will want to see that you’re actively marketing and attempting to sell your home. If you’re facing a tough market or your home simply won’t sell, your lender will appreciate seeing that you’re trying to secure additional financing.
If communication is important, written communication is critical. Be sure to keep a written record of all contact with your lender.
How Do I Pay Off a Reverse Mortgage Early?
The beauty of a reverse mortgage is that there is no penalty should you choose to pay it off early. There are several ways you can do this; let’s take a look.
The first option available to you is through the sale of your home. Use the proceeds from the sale to repay your lender, then keep the remaining profits for your own use.
Secondly, you may opt to use your savings, inheritance or other personal funds to repay your reverse mortgage.
The third option is to refinance your reverse mortgage back into a traditional mortgage. This is an excellent option if you want to keep the home in your family after your death, if you intend to remain in your home for many years or if you aren’t sure whether you’d like to sell.
Finally, you can choose to make payments on your reverse mortgage, even before its maturity. There’s no penalty for making payments to your lender over the duration of your loan if you want to get a head start on repayment.
What Happens If You Inherit a House with a Reverse Mortgage?
If you’ve inherited a home with a reverse mortgage, perhaps after your parents passing away, it’s important that you act quickly. Get in touch with the lender as soon as you’re able and ask about options for repayment. You’ll have 30 days to decide what you’ll do with the home.
Should you decide to sell, you’ll have six months to do so. You may qualify for an extension but again, you must stay in communication with the lender.
Alternatively, you may decide to keep the home. You’ll do so by paying off the reverse mortgage in full, either with your personal funds or through a refinance into a traditional mortgage.
It’s a good idea to hire an attorney who can help you navigate your experience. Selling a home under any conditions is a stressful process. Selling a home with a reverse mortgage after the loss of a loved one is more so. An experienced attorney can make sense of the process for you while you handle other aspects of your loss.
Can Heirs Walk Away from a Reverse Mortgage?
In short, yes. Heirs can choose to walk away from a reverse mortgage passed on to them. However, if this applies to you, you should consider whether this is the best course of action. Evaluate the pros and cons of selling the home; listing your inherited house may net you a profit.
Remember to factor in the costs you’ll be responsible for, including:
- HOA fees
- Property taxes
- Closing costs
- Legal fees
- Homeowners insurance
At the very least, consider contacting the lender for a payoff balance. Then, weigh the costs against the potential gains to determine the best course of action for your family.
Can You Rent Your House If You Have a Reverse Mortgage?
In most cases, no. You can not rent your house if you have a reverse mortgage. Your house must be your primary residence for the majority of the year. However, there are some exceptions.
Some lenders will allow you to take out a reverse mortgage on a property that includes up to four units. Let’s assume you’ve borrowed against the equity on a duplex you own. Most lenders will allow that, as long as you occupy one of the units, you may rent the other to a tenant.
If your property includes an “in-law suite” or even a secondary, detached building, it’s likely your lender will allow you to rent that space. The same is true for renting rooms. This is typically not a problem. Again, though, be sure to get confirmation of this in writing so as not to initiate a maturity event.
There are quite a few reasons you may be considering selling a home with a reverse mortgage. Whether you’ve lived in your home for years or have newly inherited it, when your loan comes due and payable, you’ll need to act with decisiveness.
Our guide is designed to assist you in making that decision, but ultimately the choice you make is up to you and your family. Do your research and get in touch with financial advisors and attorneys who can further assist you through the process.