Selling a home with a reverse mortgage can be a bit more complex then selling a home with a traditional mortgage. We've created this guide to share what you can expect when selling a house with a reverse mortgage.
Reverse mortgages are a fairly popular financial tool for senior homeowners. Their purpose is to free up equity in the home to use as spendable income. While both a reverse mortgage and a home equity line of credit (HELOC) free up equity for spending, the difference between the two products is a reverse mortgage does not need to be repaid until the home is sold. With a traditional mortgage, the homeowner makes payments to the lender and builds equity each month as the loan is paid down. Conversely, in a reverse mortgage, the lender makes payments to the homeowner and the homeowner loses equity and increases debt each month.
If you inherit a house with a reverse mortgage and need to sell, CoreMark Homes® is an excellent resource to provide a seamless and quick sale. For more information click here: receive a no obligation cash offer.
Let's take a closer look and address common concerns that arise when selling a home with a reverse mortgage.
Can I sell a house with a reverse mortgage?
Yes. Although the arrangement with your lender is different than it would be with a traditional mortgage, there are no restrictions on selling.
What should I consider before selling a house with a reverse mortgage?
You can sell when you want, but when you do, the loan amount, accrued interest and any fees will be repaid to the lender by the title company before dispersing remaining funds to the seller.
Like any sale of real estate, there will likely be closing costs associated with the sale. As a rule of thumb, closing costs will be equal to 2-3% of the sale price.
Is your loan balance less then what the home is worth?
When you sell a house with a reverse mortgage, you’re liable for the loan balance (including interest and fees) or 95% of the appraised value, whichever is lower.
If your loan balance and fees are less than what you get for your home, you can pocket the difference. However, if your loan balance is more than the amount you sell your home for, you may end up owing money.
It's important in this regard to be mindful of the appraised value of the property to ensure the sales price is sufficient to cover 95% of said value. Keep in mind, the amount a seller walks away with in their pocket, or the amount they net from the selling real estate, may vary by geography but a good rule of thumb is to plan to leave 9% on the table. This 9% breaks down to 6% commission payable to Realtors and roughly 3% in closing costs.
This means to cover 95% of the appraised value when all is said and done, a seller would need to sell the home for roughly 5% above the appraised value (105% of the appraised value) to recoup the 95% of appraised value of a property.
Do you have mortgage insurance?
If you have mortgage insurance, this policy is designed to cover any remaining loan balance without the seller needing to come out of pocket. Mortgage insurance is common any time the down payment is less than 20% of the home’s purchase price. FHA or USDA backed loans also require mortgage insurance.
Is the timing right?
Timing is everything. You might want to think twice about selling if you have a reverse mortgage thats fairly new. The cost of reverse mortgages tend to be front-loaded as fees are payable at origination. In other words, the bulk of the value delivered by a reverse mortgage is recognized over time.
How favorable is the current real estate market for sellers?
If your home has lost value and is worth less than the balance owed, selling may not make sense.
Before deciding to sell, run the numbers to determine if you have enough home equity, savings, or insurance coverage to meet your financial obligations.
Preparing to sell a house with a reverse mortgage:
Let your lender know that you want to sell your home and request a formal payoff amount.
Get a professional appraisal.
You can pay an appraiser or contact a Realtor for this information. Realtors are an excellent resource to understand the fair market value of properties and many will prepare a Competitive Market Analysis (CMA) at no cost.
Alternatives to selling a house with a reverse mortgage:
If selling turns out not to be ideal because you won’t walk away with enough money to make it worthwhile, figure out a Plan B.
Ask yourself, “what’s my motivation for selling?” and consider these alternatives:
Seek out financial assistance
If you can no longer afford the maintenance and taxes on your house, investigate what kind of help from your city or state you might qualify for as a senior. For example, you could be eligible for rebates on property taxes or inexpensive home improvement loans. Many utility companies also offer reduced cost services for people on fixed income.
The Ashar Group provides additional financial support for adults and their families through the sale of in-force life insurance policies. There is no age minimum or policy size minimum. All forms of life insurance can qualify. For more information, visit The Ashar Group.
Another great resource is called ElderLife Financial Services: ElderLife provides loans to adults and their families needing to finance retirement living while waiting for a home to sell or long-term care insurance or other benefits to begin. For more information, visit www.elderlifefinancial.com
Hire Caretakers
Maybe it’s not about money, but your health is on the fritz, and you need care from an able body. Consider hiring someone to provide in-home support.
Are there any penalties if I sell my home with a reverse mortgage?
No. You own the title. If you have a home with a reverse mortgage, you can sell your home and repay the loan whenever you like and incur no penalties.
What happens to the money once I sell my home that has a reverse mortgage?
Once your home is sold, the proceeds from the sale will be used to repay your mortgage balance. Any liens and closing costs must also be paid. With a bit of luck there will be something left to help you as you start a new phase of your life. Typically, once your home is sold, the title company will pay off your mortgage balance before dispersing payment to the seller.
What if my home has lost value?
It’s never fun to hear your home has lost value. This is where mortgage insurance saves the day. If your home’s sale proceeds don’t cover what you owe, mortgage insurance will cover the difference.
How much will I repay on a reverse mortgage when I sell the property?
You can satisfy the terms of a reverse mortgage by paying the full amount owed on the loan, or 95% of the current appraised value of the property, whichever is less.
How long after the homeowner’s death does a house with a reverse mortgage have to be sold?
According to the Consumer Financial Protection Bureau, when you and any co-borrower or eligible non-borrowing spouse die, your reverse mortgage loan is due and payable.
Heirs have 30 days from receiving the due and payable notice from the lender to either buy, sell, or turn the home over to the lender to make good on the debt. In some cases, heirs may have up to six months to pay, depending on the contract.
If you're interested in recruiting caretakers to care for a loved one or considering transitioning into assisted living, be sure to check out the article titled A Higher Level of Care.
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