Can You Sell Your Home If You Have a Reverse Mortgage?

A reverse mortgage allows homeowners to convert a portion of their home equity into cash without needing to make monthly mortgage payments. Homeowners can sell their property even with a reverse mortgage in place, a process that involves specific steps to settle the outstanding loan balance. This article will explain how selling a home with a reverse mortgage works, from understanding your rights to navigating the financial settlement.

Selling Your Home with a Reverse Mortgage

Homeowners maintain their property title when they have a reverse mortgage. This means they retain ownership rights, including the ability to sell the home at any point. The reverse mortgage acts as a lien against the property, similar to a traditional mortgage, but does not transfer ownership to the lender.

Upon the sale of the property, the reverse mortgage loan becomes due and payable. The full loan balance, including accrued interest and fees, must be repaid. Homeowners might choose to sell for various reasons, such as downsizing, relocating closer to family, or moving into an assisted living facility. It is important to continue living in the home as the primary residence until the sale is completed, as moving out permanently can trigger the loan to become due immediately. If a move is unavoidable, communicate proactively with the lender.

Repaying the Reverse Mortgage Loan

When a home with a reverse mortgage is sold, the loan balance, including principal, accrued interest, and fees, must be paid off from the sale proceeds. A Home Equity Conversion Mortgage (HECM) has a “non-recourse” feature. This means the borrower, or their estate, generally cannot owe more than the home’s appraised value or the sale price, whichever is less, even if the loan balance exceeds the home’s value.

If the sale proceeds are less than the total amount owed on the reverse mortgage, the Federal Housing Administration (FHA) mortgage insurance covers the shortfall. This protects the homeowner and their heirs from personal liability for the difference. If the home sells for more than the outstanding reverse mortgage balance, any remaining equity after the loan and selling costs are paid belongs to the homeowner. This allows homeowners to access any appreciation in their property’s value.

The Sale Process and Financial Settlement

Initiating the sale of a home with a reverse mortgage begins by contacting your reverse mortgage servicer to obtain a current payoff statement. This is a first step. This document details the exact amount needed to satisfy the loan, including the outstanding principal, accumulated interest, and any fees. This information helps in accurately pricing the home and understanding the financial outcome of the sale.

Once you have the payoff information, you can proceed with listing the property. Working with a real estate agent experienced in the local market can help determine an appropriate listing price and market the home effectively. When an offer is accepted, the sale progresses to closing, where a closing agent or escrow company plays a central role. This agent is responsible for managing the financial settlement, ensuring that the reverse mortgage is paid directly from the sale proceeds. After the reverse mortgage balance is satisfied and all other selling expenses, such as real estate commissions and closing costs, are deducted, any remaining funds are distributed to the homeowner.