Can You Sell a House With a Reverse Mortgage?

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Can You Sell a House With a Reverse Mortgage?

You have probably accrued sizable home equity after years (or decades) of obediently paying down your mortgage. And if your property represents a significant portion of your net worth, you may be house wealthy but cash poor, similar to many retirees. You may access that equity with a reverse mortgage without having to sell your house or take on more debt each month. But what if you decide to leave the house? Can you utilize a reverse mortgage to sell your home? Here’s all you need to know about that choice. The answer is yes.

Key Takeaways

  • Reverse mortgages are available to homeowners who are 62 years of age or older and need access to their equity for everything from basic living costs to medical bills to property maintenance.
  • Your lender advances you money against the value of your house in the form of a flat amount, a line of credit, or recurring monthly payments.
  • Over the course of the loan, interest and costs (such loan servicing) will continue to accumulate.
  • Repayment of a reverse mortgage is postponed until you sell your house, vacate the property, fall behind on property taxes and insurance, pass away, or sell it.

What Is a Reverse Mortgage?

With a reverse mortgage, homeowners who are 62 years or older may access their equity without having to sell their property or make additional monthly payments. Your lender advances you money from the equity in your house when you are authorized for a reverse mortgage, either in the form of a lump amount, a credit line, or regular monthly installments. During the loan’s duration, fees and interest increase while the value of your house diminishes. When you sell the house, vacate the property, fall behind on property taxes, or pass away, the loan becomes payable.

Types of Reverse Mortgages

There are four primary types of reverse mortgages:

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  1. HECMs. The Home Equity Conversion Mortgage (HECM), a loan guaranteed by the Federal Housing Administration (FHA) and provided by FHA-approved lenders, is the most popular kind of reverse mortgage. For qualifying borrowers with residences worth up to $970,800, HECMs are an option. The money may be used to cover everyday costs of living, medical expenditures, house improvements, holidays, etc.
  2. Reverse mortgages that are private. If the value of your house exceeds the FHA maximum, you will need a proprietary (sometimes known as jumbo) reverse mortgage. Compared to the federally insured HECM, these loans often have higher interest rates and less consumer safeguards. The reverse mortgage money may be used anyway you see fit, just like the HECM.
  3. Reverse mortgages with a single objective. Single-purpose reverse mortgages, which are often the most affordable reverse mortgage option, are offered by state, municipal, and nonprofit organizations. But there’s a catch: You may only utilize cash from a single-purpose reverse mortgage to cover particular, approved-by-the-lender costs like real estate taxes or house maintenance.
  4. Purchase of HECMs. The main difference between this reverse mortgage program and a HECM is that a HECM may be used to acquire a new house. Your new house must be your primary residence, and you must have the money to cover significant up-front fees, such as a sizeable down payment.

With a conventional mortgage, when you pay down the loan each month, equity is built. With a reverse mortgage, you lose equity each month and accumulate more debt.

Can You Sell a House With a Reverse Mortgage?

You have the title and the lender has a lien if you have a reverse mortgage. You are protected against foreclosure as long as you maintain the property and pay your property taxes, homeowners insurance, flood insurance (if necessary), and any homeowners association (HOA) payments on time.

You may sell it if you want to, then perhaps downsize, move closer to the grandchildren, or move to a better environment. The loan can be returned at any time without incurring penalties. Additionally, you are free to sell the house if you need to leave it to move into an assisted-living home or get full-time care. You decide whether to sell the house on your own, without consulting the lender or the government (in the case of FHA-backed HECM loans).

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If you’re selling a home with a reverse mortgage, run the numbers first to ensure you have enough home equity (or savings) to cover your loan payoff balance and any closing costs.

How to Sell a House With a Reverse Mortgage

You must repay your reverse mortgage loan when you sell the home, after which your lender will close the account. Here’s a rundown of the basic steps:

  • Speak with your lender. Ask for a payment quotation (the loan amount), which should include any funds you have received, interest that has accumulated, and any extra expenses. Within 30 days, the lender will issue a due and payable letter outlining the loan’s current amount, available repayment alternatives, how to prevent foreclosure, and the time frame for a response. To ascertain the worth of the property, the lender will dispatch an appraiser.
  • Put the house up for sale. Consider your mortgage amount (included in the due and payable letter) as well as closing charges when calculating the purchase price. A real estate broker, agent, or Realtor may assist with pricing, manage showings, bargain with possible buyers, and make sure the closing goes well. Hire a real estate lawyer to help you through the procedure if your state mandates it (or if you just desire legal assistance).
  • Shut down and transfer the money. Your reverse mortgage lender gets the loan payback amount at closing, and you get any extra money after deducting closing fees.

Interest, mortgage insurance premiums (MIPs), and homeowners insurance continue to accrue until the loan is paid and settled, so your loan balance will keep growing during the settlement period.

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Are There Penalties if I Sell a Home With a Reverse Mortgage?

You hold the title to the home and can sell it whenever you like for any reason. There are no penalties if you sell the house and repay the loan.

What Is a Reverse Mortgage Maturity Event?

A maturity event is something that triggers the repayment of a reverse mortgage. A maturity event occurs when you:

  • Sell the home.
  • evict yourself from the residence permanently (e.g., to move into an assisted-living facility).
  • Default on property obligations such taxes, insurance, and HOA dues.
  • Allow the house to deteriorate.
  • Die.

How Much Does Mortgage Insurance Cost?

If you have a HECM reverse mortgage, your lender will charge you a 2% upfront mortgage insurance premium (MIP) based on your home’s appraised value, up to the $970,800 maximum lending limit.

After that, an annual MIP kicks in, equal to 0.5% of your loan’s outstanding balance. Proprietary (aka jumbo) reverse mortgages don’t generally require mortgage insurance, but they tend to have higher interest rates and fewer consumer protections.

The Bottom Line

When you have a reverse mortgage, you retain title to the property and are free to sell it anytime you see fit. However, the reverse mortgage loan becomes due if you decide to sell, so be sure your home’s current value (or your savings account balance) is high enough to pay off the loan and cover the closing costs.

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