Many homeowners find that at a certain point in home ownership, it makes sense to tap into their home’s equity by taking out a reverse mortgage. But what happens if you have a reverse mortgage on your home and later decide you want to sell?
Selling a house with a mortgage is doable, and so is selling a house with a reverse mortgage. However, it’s a little different than selling a home that’s paid off or that has a traditional mortgage.
If you’ve been considering selling a house with a reverse mortgage, keep reading. We’ll break down everything you should know before you make a decision.
Is It Hard to Sell a Home With a Reverse Mortgage?
Like a traditional mortgage, a reverse mortgage can be paid off at any time. If you decide to sell your home with a reverse mortgage, you’ll pay the balance of your reverse mortgage loan back to your lender at closing.1
The details will depend on how much your home sells for compared to its appraised value and how much you owe on your loan.
Selling For More Than You Owe
If your home sells for more than your reverse mortgage balance, you’ll be able to repay your reverse mortgage lender and pocket any equity remaining.1 (Remember to take closing costs into account too.)
Selling For Less Than You Owe
It’s still possible to sell your home with a reverse mortgage even if the home’s selling price does not exceed what you owe as a borrower.1 This is known as a short sale.
Keep in mind:
- Your mortgage lender won’t approve a short sale without proof of the home’s appraised value
- You may need to provide evidence of financial hardship to convince your lender to approve a short sale2
Advantages and Disadvantages of Selling With a Reverse Mortgage
Selling a home with a reverse mortgage is a complex decision, with several pros and cons to keep in mind.
Pros of Selling With a Reverse Mortgage
Depending on your circumstances, there could be quite a few benefits to selling with a reverse mortgage:
- No Fees – There are no fees or penalties for repaying a reverse mortgage at any time.1
- Profit if your home has appreciated – If your home has gained value, you’ll retain any profit left after paying the reverse mortgage loan balance.1
- Limit on losses – If your home has lost value, you’ll only have to pay the loan balance or 95% of the appraised value, whichever is less. Your mortgage insurance will cover the difference if the sale is less than the loan balance.1
Cons of Selling With a Reverse Mortgage
Although selling a house with a reverse mortgage might benefit some situations, there are still drawbacks to consider:
- Expenses – You’ll have to pay closing costs and any other fees associated with selling, such as real estate attorney fees, realtor fees, and taxes such as property tax.
- It may be more complicated than a traditional sale – If your home has lost value, working with the lender to agree on a listing price can be complicated.2
- Equity loss – Between fees, interest, and the loan repayment, you won’t recover the full equity of your home.
How to Sell a House With a Reverse Mortgage
Although the process won’t necessarily be too much different than a traditional home sale, there are some important points to keep in mind.
#1 Contact Your Lender
The first step is notifying your mortgage lender or loan servicer that you intend to sell. Selling your home with a reverse mortgage is what’s known as a maturity event.3
When a maturity event occurs, your reverse mortgage becomes due. Your lending company will issue you a due-and-payable letter giving the balance you owe, including interest rates and fees. It will also tell you how long you have to pay off the balance.3
#2 Find Out If You Need a Real Estate Attorney
Many states require that sellers work with a real estate attorney. Due to the extra complexities of selling with a reverse mortgage, it may be a good idea to work with an attorney, even if it’s not legally required.
#3 Set Your Listing Price
As a reverse mortgage borrower, the balance remaining on your loan is your starting point for determining your listing price. From there, it’s best to contact a local real estate agent for an estimate of your home’s market value. Be sure to let them know you have a reverse mortgage, so they understand that you are working with specific requirements.4
#4 List Your Home
Your real estate agent will help you determine what repairs and minor upkeep, if any, should be done in order to get the best price possible. They will also take care of photographing the home, marketing the listing, and setting up showings. Lastly, they will handle the closing process and paperwork.
#5 Close the Sale and Pay Your Lender
At closing, the payoff amount will be sent to your reverse mortgage lender. You are usually required to pay as soon as the sale closes, although some contracts allow up to six months to pay off the loan.5
Alternatives to Selling a House With A Reverse Mortgage
If the selling price of your home won’t cover the loan payoff, you may want to consider other options on how to get out of a reverse mortgage, including:
- Paying off the reverse mortgage – After a maturity event, you still have the option to pay off the reverse mortgage and keep the home if it doesn’t sell. This may require alternative financing or setting up a monthly payment plan with your lender.1
- Deed in lieu of foreclosure – What is deed in lieu of foreclosure? A deed in lieu is where you voluntarily turn over ownership of your home to the lender to avoid foreclosure. In cases where you are unable to sell the home, can’t pay off the loan amount, and don’t want a foreclosure on your credit report, you may be able to sign your deed over to the lender. This option is clearly not ideal—you’ll be walking away from your home as well as the debt. We know what happens if you can’t pay your mortgage, and a deed in lieu of foreclosure may be more appealing than risking foreclosure.6
- Staying In the home – If you aren’t going to turn a profit by selling your home, exploring options to access your home’s equity while still aging in place may make the most sense. A sale-leaseback program like allows you to convert your home equity into cash by selling your home and staying as a renter.
Selling a house with a reverse mortgage is a complicated decision. Many retirees end up with much of their net worth tied up in their homes and inaccessible. At the same time, selling a home with a reverse mortgage can result in losing equity. If selling with a reverse mortgage isn’t for you, you might want to explore other options to convert your home’s equity to cash.
- Consumer Financial Protection Bureau. You Have a Reverse Mortgage: Know Your Rights And Responsibilities. https://files.consumerfinance.gov/f/documents/cfpb_reverse_mortgage_rights_responsibilities.pdf
- SFGate. Can a Reverse Mortgage Be Short Sold? https://homeguides.sfgate.com/can-reverse-mortgage-short-sold-60903.html
- Investopedia. Maturity Event Definition. https://www.investopedia.com/maturity-event-5222096
- 360 Training. Tips for Selling a House with a Reverse Mortgage. https://www.360training.com/blog/tips-selling-reverse-mortgage-house
- Kiplinger. What Heirs Need to Know About Reverse Mortgages. https://www.kiplinger.com/article/retirement/t021-c000-s004-what-heirs-need-to-know-about-reverse-mortgages.html
- Consumer Financial Protection Bureau. What is a Deed in Lieu of Foreclosure? https://www.consumerfinance.gov/ask-cfpb/what-is-a-deed-in-lieu-of-foreclosure-en-291/
- Investopedia. Can You Sell a House With a Reverse Mortgage? https://www.investopedia.com/sell-house-with-reverse-mortgage-5248634
- Investopedia. What You Should Know About Home Appraisals. https://www.investopedia.com/articles/pf/12/home-appraisals.asp