Selling With A Reverse Mortgage
A reverse mortgage is a popular choice for retirees who wish to remain in their homes and not have to sell. This allows homeowners to access their equity without moving. What happens if you want to sell your home using a reverse mortgage? Here's how to help a family member, a homeowner, or someone who inherits a house with reverse mortgages.
Understanding A Reverse Mortgage
Reverse mortgages that are not home equity conversion mortgages (HECM) are most commonly controlled and insured by both the Federal Housing Administration and the Department of Housing and Urban Development.
You must meet the following requirements to be eligible for a HECM reverse loan:
You must be at least 62 years old
You can live in the property as your primary residence
You can own the house outright or only have a small mortgage balance
Although predatory reverse mortgages are less common now that FHA and HUD have taken over reverse mortgage oversight, there still exists. This article will focus on reverse mortgages that are FHA- or HUD-backed. If you have a private reverse mortgage, it may not be applicable.
How Reverse Mortgages Work
Reverse mortgages allow you to convert the equity in your home into a lien. This allows you to receive monthly payments. A reverse mortgage is different from a traditional mortgage. Instead of gaining equity each time the homeowner makes a payment, the holder of a reverse mortgage loses equity every month as they receive a payment.
Is It Possible To Sell Your House Using A Reverse Mortgage?
It is legal for homeowners to sell their homes using a reverse mortgage. You retain the title, but the lender holds a lien. This is similar to a traditional mortgage. However, you must pay the remaining balance to the lender when you sell. Then you can walk away with the equity.
If you are selling a house with a reverse mortgage, ensure you have sufficient equity to pay both the loan balance and closing expenses.
What Is The Difference Between Selling A Traditional Home And A House With A Reverse Loan?
Although the process is essentially the same, there are some key differences when you're trying to sell a house with a reverse mortgage.
Equity is moving in reverse:
A traditional mortgage allows you to gain equity each month while you pay your principal. Reverse mortgages are a loss of equity that increases your monthly debt as you pay it. This reduces the amount that you can resell.
Non-recourse mortgages:
Reverse mortgages are usually referred to as non-recourse loans because they are backed federally. This means neither you nor your heirs will owe more than the home's worth -- basically, you can't go underwater on a reverse-mortgage home. However, this may not apply if your reverse mortgage is not FHA-/HUD-backed.
Due and payment letter:
When selling a reverse mortgage, you will work with the lender to establish a time frame and agree on a fair price.
Why Sell With A Reverse Mortgage?
A maturity event is what lenders refer to as the trigger for the act of selling a house with a reverse mortgage. Your reverse mortgage becomes due when a maturity event occurs. A maturity event can be triggered by you, such as when you decide to sell your house. A maturity event could also be triggered by the death or illness of the homeowner.
Maturity Situations That Demand Reverse Mortgage Payoff:
Selling is a choice
Death
A nursing home or assisted living facility is required for an individual who has a serious illness.
Unpaid property taxes and HOA fees
Home in disrepair
Stay in touch with your lender if you are being forced to sell because of a maturity event. If your lender believes you are not actively seeking to sell your home after a maturity event, they might take legal action such as starting foreclosure proceedings.
Reverse Mortgage: How to Sell a House
A reverse mortgage can be used to sell a house.
Get In Touch With Your Reverse Mortgage Lender
Your first step in any home sale is to contact your lender for a loan payment amount. This estimate will show you how much you will owe your reverse mortgage lender at closing. It also includes any fees. The principal borrowed, interest owed, and any additional unpaid fees are all included in your loan payoff. This is prorated to the closing date.
These Are The Steps To Follow:
Within 30 days of maturity, notify the lender. The lender will verify your maturity event.
The lender sends the homeowner or his heir a due-and-payable letter.
Within 30 days of receiving the notice, notify the lender that you intend to sell your home.
The lender will likely hire an appraiser to assess the property.
If the reverse mortgage exceeds the value, you will owe 95% of the amount due. Insurance covers the additional 5%.
Set A Listing Price
Your listing price must be determined based on the reverse mortgage balance you owe. This amount is provided in your due and payable letter. Remember to include closing costs. Consider the current market conditions as well as recent sales nearby of similar homes if you're selling to make a profit.
Pricing with an Agent: If you are looking to sell your house the traditional way, you can hire a realty agent to do the comps and set the pricing. A real estate agent can help with showings, negotiate with buyers and ensure that the closing goes smoothly. Your agent should be notified as soon as you are able to that you have a reverse loan.
Hire A Real Estate Attorney
Nearly half of all states require that you hire a real-estate attorney. Although it may not be required in your state for reverse mortgages, it is a smart idea to hire a lawyer. Most people aren't as familiar with the process. In addition, an attorney can help you navigate the reverse mortgage process if you are selling an inherited property.
Alabama, Connecticut, and Delaware are the 22 states in which you must use a realty attorney to sell your house.
List And Then Sell
Selling a house with a reverse mortgage is the same process as selling a home without one. To help you find a buyer, strong listing descriptions and professional photographs are essential.
Transfer Funds And Close
The title company will pay off the loan amount at closing and send it directly to your reverse mortgage lender. To ensure that everything is paid, double-check the closing statement. You should transfer the excess proceeds, fewer closing costs.
Reverse Mortgage Alternatives To Selling Your Home
If your home's market value isn't enough to pay your reverse mortgage or cover closing costs, here are some options.
Aging In Place
If you don't plan on making money selling your home using a reverse mortgage, it is best to keep your house. This doesn't apply if you have mobility limitations, need medical care, or just want to be closer to your family.
Repayment Of The Balance
After a maturity event, homeowners or heirs can pay the balance. This usually requires alternative financing and notice to the reverse mortgage lender.
If you are inheriting the property, you will still need to contact the lender within 30 days of receiving the due-and-payable letter. After that, a payment plan can be set up. The debt is usually repaid within six months by the heirs.
In Lieu Of Foreclosure, The Deed
You can deed the property to the lender if you are unable to sell the house after a maturity event. This will allow you to walk away without having to pay a foreclosure notice on your credit score. In addition, if the proceeds from the sale of the house are not worth the effort of listing it, heirs may choose to deed the home back to the lender.
