Can You Sell a House With a Reverse Mortgage?

Understanding Reverse Mortgages

A reverse mortgage provides a financial option for homeowners, typically those aged 62 or older, to convert a portion of their home equity into accessible funds. Unlike a traditional mortgage where the homeowner makes regular monthly payments to a lender, a reverse mortgage involves the lender disbursing funds to the homeowner. The homeowner retains the title to their property, allowing them to access home equity without immediately selling the residence. These funds can be received in various ways, such as a single lump sum, scheduled monthly payments, or through a flexible line of credit. As funds are advanced, interest and associated fees are added to the loan balance, causing the total amount owed to grow over time.

Selling a Home with an Active Reverse Mortgage

Homeowners with an active reverse mortgage are permitted to sell their property. The process largely mirrors a conventional home sale, with the homeowner retaining full ownership and control throughout. Initiating a sale typically involves engaging a real estate agent to list the property, market it, and manage negotiations with potential buyers. The homeowner is responsible for setting the listing price and making decisions regarding offers.

When a sale is imminent, the homeowner must inform their reverse mortgage lender of the intent to sell. This notification allows the lender to prepare the necessary documentation for the payoff. The closing agent, often a title company or an attorney, coordinates directly with the reverse mortgage servicer. This coordination ensures that the precise final payoff amount, including the principal loan balance, accrued interest, and any associated fees, is accurately calculated for the closing date. The homeowner’s role throughout this period remains central, as they guide the sale process from listing through contract finalization.

Settling the Reverse Mortgage from Sale Proceeds

At the closing of a home sale involving a reverse mortgage, the financial settlement prioritizes the repayment of the outstanding loan balance. The accumulated amount, which includes the principal borrowed, all accrued interest, and any lender fees, is paid directly from the sale proceeds. The reverse mortgage lender receives their full entitlement before any remaining equity is disbursed. This ensures the lien on the property is satisfied and removed.

A significant protection for borrowers is the non-recourse nature of most reverse mortgages, particularly Home Equity Conversion Mortgages (HECMs) which are federally insured. This means that if the home’s sale price is less than the total amount owed on the reverse mortgage, neither the homeowner nor their estate is personally responsible for the deficit. For example, if the loan balance is $300,000 but the home sells for $280,000, the $20,000 difference is typically covered by the Federal Housing Administration (FHA) insurance, not by the homeowner or their heirs. The closing agent plays a vital role in this transaction by facilitating the disbursement of funds, ensuring the reverse mortgage is fully discharged, and overseeing the proper transfer of title to the new owner. Any remaining funds from the sale, after the reverse mortgage and all other closing costs are paid, are then distributed to the homeowner.

Selling a Home After the Borrower’s Passing

When a reverse mortgage borrower passes away, their heirs typically face a specific timeframe to address the outstanding loan, usually between six to twelve months, though extensions may be available from the lender. During this period, heirs have several options for the property, with selling the home being a common choice to satisfy the reverse mortgage. The non-recourse feature of the loan extends to heirs; they are not personally liable for any amount exceeding the home’s value if the sale proceeds are insufficient to cover the full loan balance.

Heirs must notify the reverse mortgage servicer of the borrower’s death and determine the exact payoff amount. To sell the property, they will engage a real estate agent and work with a closing attorney or title company to manage the transaction. If heirs wish to keep the home, they have the option to pay off the reverse mortgage for either the full loan balance or 95% of the home’s appraised value, whichever figure is less. This provision allows heirs to retain the property without being burdened by a debt that exceeds its market value.