Can I Sell My House With a Reverse Mortgage?

A reverse mortgage allows homeowners, typically those aged 62 or older, to convert a portion of their home equity into cash without incurring monthly mortgage payments. This financial tool enables individuals to access the value built up in their homes, often to supplement retirement income or cover living expenses. Homeowners retain ownership of their property with a reverse mortgage, allowing them to sell their house at any time.

Understanding Your Reverse Mortgage Obligations

When a home with a reverse mortgage is sold, the loan becomes due and payable from the sale proceeds. The total amount owed typically includes the original principal, accrued interest, mortgage insurance premiums, and any service fees. These charges accumulate over the loan’s life, increasing the total balance.

Interest on a reverse mortgage accrues monthly and is added to the loan balance. This compounding effect means interest is calculated on the initial amount borrowed and on accumulated interest, which can cause the total loan balance to grow significantly. For federally insured Home Equity Conversion Mortgages (HECMs), a Mortgage Insurance Premium (MIP) is also part of the amount owed.

This MIP includes an Upfront Mortgage Insurance Premium (UFMIP), typically 2% of the lesser of the home’s appraised value or the maximum claim amount. An annual MIP of 0.5% of the outstanding loan balance is also charged and added to the loan. Some reverse mortgages may also include a monthly service fee, covering administrative costs.

Preparing to Sell Your Home

Before listing a home with a reverse mortgage, obtain a current payoff statement directly from the reverse mortgage lender or servicer. This statement provides the exact amount required to satisfy the loan, detailing the principal balance, accrued interest, and any outstanding fees.

Requesting this statement can take around five business days. Concurrently, assessing the home’s current market value is important to estimate a realistic sale price. This can be achieved through professional appraisals or valuations from experienced real estate agents.

Once the estimated market value and precise payoff amount are known, the homeowner can calculate their potential equity. This involves subtracting the total reverse mortgage balance and anticipated selling costs, such as real estate commissions and closing fees, from the estimated sale price. Informing the reverse mortgage lender of the intent to sell early in the process, as they can provide specific requirements or procedures for a smoother transaction.

The Sale Process and Loan Repayment

After completing the preparatory steps, the homeowner can proceed with listing and marketing the property, similar to any traditional real estate sale. This involves working with a real estate agent, attracting potential buyers, and receiving offers. Once a suitable offer is accepted, the process moves toward closing, where the reverse mortgage repayment is integrated into the transaction.

During closing, the title company or closing agent plays a central role. They will directly contact the reverse mortgage lender to obtain the final payoff amount, ensuring accuracy. The reverse mortgage loan is then repaid directly from the gross sale proceeds. This direct settlement ensures the loan is satisfied and the lien on the property is removed.

After the reverse mortgage and all other selling costs, such as real estate commissions, title insurance, and other closing fees, have been paid, any remaining funds are distributed to the seller. The entire process is managed by the closing agent, reducing the burden on the homeowner to handle financial transfers directly.

What Happens After the Sale

Once the sale of the home is complete and the reverse mortgage has been fully repaid, the financial outcome for the homeowner depends on the sale price relative to the total loan balance and selling costs. If the sale price exceeds the total amount owed on the reverse mortgage plus all associated selling expenses, the homeowner receives the surplus funds. This cash equity can then be used for future housing needs, such as purchasing a new home or relocating to an assisted living facility.

In situations where the sale price is less than the total reverse mortgage balance, most federally insured Home Equity Conversion Mortgages (HECMs) include a “non-recourse” clause. This means the homeowner or their heirs are generally not personally liable for the difference between the sale price and the amount owed. The Federal Housing Administration (FHA) mortgage insurance typically covers this shortfall to the lender.

This protection ensures that the lender cannot pursue other assets from the homeowner or their estate to recover the deficit. The non-recourse feature provides a significant safeguard, offering peace of mind regarding potential market fluctuations or extended loan durations.