Can You Sell A House With A Reverse Mortgage

Can You Sell a House with a Reverse Mortgage?

Imagine this: You’re in your golden years, living in the home you love, and all of a sudden, life throws you a curveball. Maybe it’s a sudden medical expense or the desire to move closer to family. But there’s a catch—you’ve got a reverse mortgage on your home. Now, you’re left wondering, can you sell your house with a reverse mortgage?

If you’re in this situation or even contemplating it, you’re in the right place. This post will guide you through the ins and outs of selling a home with a reverse mortgage, how it works, and what you need to consider. We’ll break down the process, potential pitfalls, and share real-life scenarios to help you make informed decisions. By the end, you’ll know exactly what to do if you find yourself needing to sell your home.

Understanding Reverse Mortgages

What Is a Reverse Mortgage?

A reverse mortgage is a loan available to homeowners aged 62 and older that allows them to convert part of their home equity into cash. Instead of making monthly mortgage payments, the loan balance increases over time as interest accrues. This can be a great way to access funds during retirement, but it comes with specific rules and ramifications.

How It Works

The homeowner receives payments from the lender, either in a lump sum, monthly payments, or a line of credit. The loan is repaid when the homeowner sells the house, moves out, or passes away. At that point, the home is typically sold to repay the loan amount, which is usually equal to the home’s current market value or the amount borrowed, whichever is less.

Selling a Home with a Reverse Mortgage

Can You Sell?

Yes, you can sell a house with a reverse mortgage. But before you start putting up “For Sale” signs, there are some important details to consider. You’ll need to repay the reverse mortgage balance, which can be done through the sale proceeds. If the sale price is higher than what you owe, you’ll keep the difference. If it’s lower, the lender will take what they are owed, and any remaining equity will go to your heirs.

Steps to Sell Your Home

1. Get a Home Appraisal: First, you’ll want to know your home’s current market value. An appraisal can help establish a fair selling price.

2. Contact Your Lender: Before listing your home, reach out to your reverse mortgage lender. They’ll provide the exact payoff amount you owe.

3. List Your Home: Work with a real estate agent who has experience with reverse mortgages. They can help you navigate the process more smoothly.

4. Negotiate Offers: Once you receive offers, you can negotiate just like any other sale. Remember, you’ll need to cover the reverse mortgage balance when you sell.

5. Close the Sale: At closing, the proceeds will first go to pay off the reverse mortgage. Any remaining funds will be yours.

Real-World Scenarios

Scenario 1: The Smith Family

Meet the Smiths. They’re in their late 60s, living in a house valued at $400,000 with a reverse mortgage balance of $200,000. They’ve decided to downsize and move to a smaller place closer to their grandchildren. After getting an appraisal, they list their home for $425,000. Once they accept an offer, they pay off the $200,000 reverse mortgage, and they’re left with $225,000 after closing costs. This gives them a solid down payment on their new home.

Scenario 2: Mary’s Dilemma

Mary is a 70-year-old widow who took out a reverse mortgage on her home valued at $300,000. Unfortunately, due to rising medical expenses, she needs to sell her home quickly. After listing her house, she receives an offer for $280,000. After contacting her lender, she finds out she owes $290,000 on her reverse mortgage. In this case, the lender will sell the home to recover their loss, and Mary will have to find alternative housing, but her heirs won’t be responsible for the difference.

Important Considerations

Fees and Costs

When selling a home with a reverse mortgage, be aware of potential fees. There can be closing costs associated with selling, and you might have to pay real estate agent fees, typically around 5-6% of the sale price. Be sure to factor these into your selling decision.

Timing the Sale

Timing can be everything. If you’re considering selling, keep an eye on the real estate market. If your neighborhood is booming and homes are selling quickly, it might be a perfect time to sell. Conversely, if the market is slow, you might want to wait a bit longer for a better offer.

Tax Implications

Selling a house with a reverse mortgage may have tax implications, particularly if you’re making a profit. While the IRS doesn’t tax reverse mortgage proceeds, be sure to consult a tax professional to understand how selling your home might affect your tax situation.

FAQs

1. What happens to my reverse mortgage if I sell my house?

When you sell your house, the reverse mortgage must be paid off with the sale proceeds. If the sale price is higher than what you owe, you get to keep the difference. If it’s lower, the lender will recover their losses, and your heirs won’t owe anything more.

2. Can I sell my house if I still live in it?

Yes, you can sell your house while living in it. Just keep in mind that the lender will need to be paid off from the sale proceeds, and you should inform them of your intention to sell.

3. What if my home’s value has decreased?

If your home’s value has decreased, you might owe more on the reverse mortgage than what you can sell it for. In this case, the lender will take the loss, and your heirs won’t have any financial obligation beyond the sale.

4. Do I need to pay off my reverse mortgage before selling?

No, you don’t need to pay off your reverse mortgage before selling. The sale proceeds will be used to pay off the mortgage at closing.

5. Can I sell my home to a family member?

Yes, you can sell your home to a family member. However, the sale price should be fair market value to avoid complications with the lender.

Final Thoughts

Selling a house with a reverse mortgage can feel overwhelming, but it doesn’t have to be. By understanding the process, knowing your rights, and working with professionals, you can navigate the sale smoothly.

If you’re facing unexpected life changes or simply want to explore your options, take these steps: reach out to your reverse mortgage lender, consult a real estate agent, and consider your financial goals. Being informed is the best way to make decisions that work for you and your family.

For more insights, check out our posts on abbreviation for mortgage and can a reverse mortgage be refinanced. If you’re considering long-term options, see if there are 50-year mortgages in your area, or learn about local laws like the California Residential Mortgage Lending Act.

Take charge of your financial future today!