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Selling a House With a Reverse Mortgage PT. 1

A handful of San Clemente Realtors will tell you that many retirees who want to age in place without selling elect for a reverse mortgage. This strategy allows homeowners to tap into their equity without having to move. But what happens if you decide to sell a home with a reverse mortgage?

Whether you are a homeowner with a reverse mortgage, you are assisting a family member market with a reverse mortgage, or you’ve inherited a home with a reverse mortgage, here’s some insights from our San Clemente Real Estate Agents.

Understanding a reverse mortgage

Most reverse mortgages are home equity conversion mortgages (HECM), which means they are controlled and insured by the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).

To qualify for an HECM reverse mortgage, you must:

  • Be 62 years or older
  • Live in the property as your primary residence
  • Own the home outright or have only a small mortgage balance

While FHA and HUD oversight of reverse mortgages has decreased the number of predatory reverse mortgages out there, they do still exist. In this article, we are going to be focusing on FHA- and HUD-backed reverse mortgages, so if you have a privately managed reverse mortgage, this information may not apply.

How a reverse mortgage works

A reverse mortgage allows you to convert your home’s equity into a lien, which lets you receive monthly payments. Unlike a traditional mortgage, where the homeowner gains equity each time they make a payment, a reverse mortgage broker loses equity every month because they receive a payment.

Can you sell a house with a reverse mortgage?

Yes, it’s perfectly legal for a homeowner to sell a home with a reverse mortgage — it’s your home, and you have the right to market when you see fit. Just like with a traditional mortgage, you still hold the title, but the lender has a lien.

When you sell, you pay the balance due to the lender at closing, then you walk away with any remaining equity.

If you’re selling a home with a reverse mortgage, make sure you have sufficient equity in the home to cover both your loan payoff balance and closing costs.

How is selling a home with a reverse mortgage different than selling traditionally?

While the process is mostly the same, our San Clemente Realtors say there are a few key differences when you sell a home with a reverse mortgage.

Equity is going in reverse: With a traditional mortgage, you are gaining equity every month as you pay your principal. With a reverse mortgage, you are losing equity and increasing your debt each month as you are paid. This reduces the amount you’ll net at resale.

Non-recourse loan: Since reverse mortgages are backed by the federal government, they’re usually known as non-recourse loans. This means that neither you nor your heirs will owe more money than the home’s value — essentially, you can’t go underwater on a reverse mortgage home (this may not be true if you have a reverse mortgage that’s not FHA- or HUD-backed).

Due and payable letter: When you sell a reverse mortgage, you work with the lender to set a time frame to market and agree on a fair sale price

Why sell a home with a reverse mortgage?

Our San Clemente Realtors say that the act of selling a home with a reverse mortgage is typically triggered by what lenders call a maturity event. Anytime a maturity event is reached, your reverse mortgage comes due.

You can activate a maturity event yourself (for example, deciding you want to market your home). Or a maturity event might be reached automatically, due to the homeowner’s death or illness.

  • Maturity events that need reverse mortgage payoff:
  • Deciding to sell
  • Death
  • Illness that requires a move into assisted living or a nursing home
  • Unpaid property taxes or HOA fees
  • Home in disrepair

If you are being forced to sell due to a maturity event, stay in contact with your lender to prove you’re actively trying to sell your home. Our San Clemente Real Estate Agents say that if your lender thinks you are not actively trying to sell after a maturity occasion, they may take action, such as starting foreclosure proceedings.

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