You can sell a house with a reverse mortgage because you have the title. These sales can be more complicated than other transactions, though.
- You own your property, not the bank.
- The process is like other real estate sales, except your lender has additional provisions because the loan is increasing rather than decreasing.
- You have up to a year to sell your home after an event triggers loan maturity.
Because these deals can be more complicated, you should shop around for the right real estate agent to represent you. Take time to interview professionals in your area and make sure they have experience working with these types of loans.
Who Owns a House with a Reverse Mortgage?
If you have a reverse mortgage on your home, you still own it. However, banks do impose restrictions to protect their investment. Some are unique and some are like requirements for regular mortgages.
Requirements and Restrictions
Your lender wants to protect its investment. It does this by protecting its title and value with various requirements and restrictions. You must:
- Maintain your property – this includes upkeep like mowing the lawn
- Fix major problems – don’t let the property fall into disrepair
- Live in the home as your primary residence
- Pay insurance, property taxes, and association fees if applicable
- Not move out of the house and use it as a rental property
When you permanently leave the property for any reason, the loan becomes due. In most cases that means you must sell the property.
Reverse mortgages are non-recourse loans. That means that you or your heirs won’t owe more than the value of the property. Most are Home Equity Conversion Mortgages (HECM), and the Federal Housing Administration (FHA) insures them. For these loans:
- The FHA pays the difference between the proceeds from the sale and the remaining balance on the loan if you owe more than the property is worth.
- You or your heir won’t pay more than 95% of the market value of the home.
- Your heirs may buy the house for 95% of the appraised value or the balance of the loan, whichever is lower.
- Lenders can’t go after any other assets if the appraised value is less than the balance owed.
This means that you can always sell your home, even if it is underwater (you owe more than it’s worth).
What Happens When You Sell a House with a Reverse Mortgage?
What happens when you sell a house with a reverse mortgage is very similar to what happens when you have a traditional loan. The most important difference is how you handle the mortgage. Because your debt is increasing rather than decreasing the bank requires more involvement. Before you start, contact your lender and find out what your balance is. If you owe more than you can sell your home for it becomes complicated. In either case, the next step is to hire a realtor to market and sell the property.
- The lender sends you a due and payable letter that tells you the balance owed
- Contact a real estate agent to list and sells your house
- Once you have a contract, your lender appraises your house
- Hire an attorney, or in some areas a title agency, to handle the closing
If your house sells for more than what you owe, you keep the difference. It gets more complicated, though, if you are underwater. If the house sells for less than your outstanding balance, the appraisal becomes important.
You are required to pay up to 95% of the appraised value, not the sales price. If you sell under the bank’s appraised value, you are obligated to pay the difference. This usually is not a problem. If the house is marketed properly it will sell for the appraised value, but sometimes complications arise where this becomes an issue.
Make sure that when you hire a professional to market your property that they have experience with selling reverse mortgage homes. Anyone experienced professional knows about these complications, so vet your realtor before hiring them.2
How Long do You Have to Sell a House with a Reverse Mortgage?
How long it takes to sell a house with a reverse mortgage is consistent, no matter what even triggers maturity. Maturity occurs when you pass, transfer title, live away from the house or fail to meet loan requirements. Each of these triggers a loan maturity.
- Your lender sends a due and payable letter.
- The loan becomes due and payments stop.
- The bank orders an appraisal.
- You or your estate must respond within 30 days to the demand letter. If you don’t respond your lender begins foreclosure procedures immediately.
- After you respond you have six months to market, sell, and close the property.
- With the bank’s approval, you can get two 90-day extensions.
- If you don’t before the end of that period, the bank forecloses
If you communicate properly with your lender you have up to a year to close the sale. Most houses sell between 60-180 days from the time they are first listed until they close. If you price and market your home well, then it should close before six months. The extensions become important if a deal falls through, or a problem triggers a contract clause that you must address. If you are marketing or in the closing process the bank will approve the extensions.3
Final Thoughts about Selling a House with a Reverse Mortgage
You can sell a house with a reverse mortgage because you own the house, not the bank. You still have the title. If you do sell your home, It is important to communicate with your lender right from the beginning.
The other important thing is to find a real estate professional experienced in selling homes with these types of loans. Because you may owe more than your property is worth and the appraised value may be different than the sale price, these transactions can be more complicated.