How to Sell a Home 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. Unlike a traditional mortgage where regular monthly payments are made to a lender, a reverse mortgage involves the lender paying the homeowner. The loan amount grows over time as interest accrues and funds are disbursed, with repayment generally not required until the last borrower permanently leaves the home, sells it, or passes away. Many homeowners consider selling their property, even with an existing reverse mortgage, to relocate, downsize, or manage their financial situation.

Understanding the Reverse Mortgage Payoff

Before selling a home with a reverse mortgage, homeowners must understand the outstanding loan balance. This balance includes the original principal, accumulated interest, mortgage insurance premiums (MIP), and any cash advances received.

To determine the exact amount needed to satisfy the loan, homeowners must obtain a formal payoff statement from their reverse mortgage servicer. This document provides a precise figure, including the current principal balance, accrued interest up to a specified date, and any other fees. It also includes a per diem interest rate to account for closing date variations.

Requesting a payoff statement typically requires submitting a written request to the loan servicer. This request should include the homeowner’s full name, property address, reverse mortgage loan number, and anticipated payoff date. A formal written statement is often necessary for closing purposes.

The Selling Process

Selling a home with a reverse mortgage generally follows the same steps as selling any other property. The primary distinction is the financial settlement of the reverse mortgage at closing. Homeowners should begin by preparing their property for sale, which might involve necessary repairs or staging.

Selecting a real estate agent with experience in reverse mortgage transactions can be beneficial. Such an agent understands the nuances of these loans and can provide guidance. Once the home is ready, the agent will list the property, implement marketing strategies, and coordinate showings.

Upon receiving an offer, the homeowner will negotiate the sale price and terms. The reverse mortgage becomes due and payable when the home is sold, so the sale price must cover the outstanding loan balance. Homeowners must maintain occupancy until the sale is complete, as moving out permanently can trigger the loan to become due immediately.

Closing and Loan Repayment

The closing process for a home with a reverse mortgage finalizes the financial transaction and repays the loan. At closing, the home sale proceeds are first used to pay off the reverse mortgage loan in its entirety.

A closing agent or escrow company facilitates this payoff. They coordinate with the reverse mortgage servicer to ensure the correct payoff amount is remitted from the sale proceeds. The closing agent handles the distribution of funds, including paying off the reverse mortgage and other closing costs like real estate commissions or title fees.

A significant protection for reverse mortgage borrowers is their non-recourse nature. This means if the home’s sale price is less than the total amount owed, the lender cannot seek additional repayment from the borrower, their estate, or heirs. If the sale price exceeds the loan balance and all associated costs, any remaining equity is disbursed to the selling homeowner.

Selling an Inherited Home with a Reverse Mortgage

When a homeowner with a reverse mortgage passes away, the loan typically becomes due and payable. Heirs face specific timelines to address the outstanding reverse mortgage. Upon notification of the borrower’s death, the loan servicer issues a due and payable notice.

Heirs generally have about 30 days to respond, with potential extensions up to six or even 12 months, to repay the loan, refinance it, or sell the home. Extensions often depend on demonstrating progress toward resolving the loan.

A key provision for heirs is the “95% rule,” which applies if the loan balance exceeds the home’s current market value. Under this rule, heirs can pay off the reverse mortgage for 95% of the home’s appraised value to keep the property. If heirs sell the home, proceeds pay off the reverse mortgage, with any remaining funds going to the estate. If the home’s value is less than the loan balance, the Federal Housing Administration (FHA) mortgage insurance covers the shortfall. Heirs can also walk away from the property, allowing foreclosure, without personal financial liability.