Hire A Real Estate Attorney
In almost half of all states, you are required to hire a real estate attorney. Even if its not required in your state, it can be a good idea to have legal representation when dealing with a reverse mortgage, because most people are less familiar with the process. And if youre handling a reverse mortgage sale on an inherited home, it can be helpful to have an attorney walk you through the process.
The 22 states where you are required to use a real estate attorney to sell your home are Alabama, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia and West Virginia.
What Happens To The Money When You Sell A Home That Has A Reverse Mortgage
Traditional mortgages allow you to pay down your mortgage balance over time. A reverse mortgage pays you monthly or in a lump sum. A reverse mortgage increases debt.
It is possible that you may deplete your equity. The balance and interest on a reverse mortgage must be repaid. Your heirs will receive any money that remains after the home is sold.
Tip #: Never Pay More Than The Home Is Worth On Your Loan
HECMs are non-recourse loans insured by the Federal Housing Administration , which means that borrowers will never be forced to pay more than the home is worth. If youre interested in selling a home with a reverse mortgage, but the real estate market has sunk and your loan balance is higher than the property value, you will only be responsible for repaying 95 percent of the homes appraised value. A lender cannot seek debt repayment through other assets aside from the home.
If you are considering selling a home with a reverse mortgage, use the appropriate FHA appraisal form to learn the value of your property and compare it against your loan balance. Mortgagees must obtain an appraisal of the property no later than 30 days after:
- Providing notice that the reverse mortgage is due and payable
- The mortgagor, their estate, heir, or another legal entity requests an appraisal in connection with a pending sale
- The mortgagee becomes aware of the death of the last surviving borrower
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Mistakes To Avoid When Selling A House With A Reverse Mortgage
When planning to sell your home, always consider the timing. Youre not going to get the full equity from the sale after receiving the equity as a line of credit with a reverse mortgage.
However, consider the fees associated with the loan and current home value before putting it on the market. You dont want to put the home on the market too soon.
Avoid costly closing costs and fees by adhering to the deadlines specified in your contract with your lender to sell your home.
How Long Do You Have To Get Out Of A Reverse Mortgage
If youve taken out a reverse mortgage, you dont need to pay it back as long as you continue to live in the home as your main residence, you make timely property taxes and home insurance payments, and you keep the property in good repair.
But when you inherit a home with a reverse mortgage, there are a few deadlines you need to follow. Youll usually have three options: sell the property, buy it, or allow the lender to foreclose. While repayment of the loan is due within 30 days of the time the estate receives a demand letter, you may be able to have up to six months to get out of the reverse mortgage by selling the home or obtaining financing.
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Foreclosure Of A Reverse Mortgage
Just like with a traditional mortgage, is it possible for a reverse mortgage to be foreclosed on. With a traditional mortgage, the reason for foreclosure is typically not making your payments. With a reverse mortgage, there are no monthly payments, so the reasons for foreclosure are different.
- The house is no longer the primary residence .
- The home is sold at this point, the loan is due and payable immediately.
- The owner passes away.
- Property taxes or insurance are unpaid.
- The house is not properly maintained.
Those are the reasons why a reverse mortgage might be called in by the bank. But what if you yourself decide to end the reverse mortgage by selling your house?
What Happens If You Inherit A House With A Reverse Mortgage
If youve inherited a home with a reverse mortgage, perhaps after your parents passing away, its important that you act quickly. Get in touch with the lender as soon as youre able and ask about options for repayment. Youll have 30 days to decide what youll do with the home.
Should you decide to sell, youll have six months to do so. You may qualify for an extension but again, you must stay in communication with the lender.
Alternatively, you may decide to keep the home. Youll do so by paying off the reverse mortgage in full, either with your personal funds or through a refinance into a traditional mortgage.
Its a good idea to hire an attorney who can help you navigate your experience. Selling a home under any conditions is a stressful process. Selling a home with a reverse mortgage after the loss of a loved one is more so. An experienced attorney can make sense of the process for you while you handle other aspects of your loss.
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Selling A Home With A Reverse Mortgage Faqs
Lets get your first question out of the way: You can definitely sell a house purchased with a reverse mortgage, and you are allowed to sell anytime you want.
Thats when your loan becomes payable, along with all interest and fees, and when youll be expected to pay more than your house is actually worth if depreciation has occurred. On the flip side, you could also be in the position of selling the property at a considerably higher price than what you paid for if the value has increased over time.
If you dont know exactly where these considerations will put you once its time to list the property and get it sold quickly, here are the most frequently asked questions on the matter:
A Wise Move Under The Right Circumstances
Refinancing a reverse mortgage can be a wise move for seniors who fit the criteria.
âA refinance can pay off your existing reverse mortgage and possibly provide you with a lump sum or monthly payment tapped from available additional equity â money that can come in handy as you age,â Fleysher said.
However, be sure to inspect your reverse mortgage loan documents to learn if there are any fees related to prepayment, âand check with your refinancing lender or agent regarding closing costs involved,â he recommended.
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Proof Of Your Reverse Mortgage
You can provide proof of your reverse mortgage with a copy of your mortgage contract or loan agreement. This step is required for both selling your house on the market and when you sell it for cash. You need to prove that you do in fact have a reverse mortgage on your home so that your buyer knows just how much is owed on the house.
Can You Sell A House With A Reverse Mortgage If The Owners Have Passed Away
The loan payment immediately becomes due when you inherit a reverse mortgage home in Lexington, KY. After losing a loved one it can be complicated to decide on what to do with the inherited property. The financial aspects and paperwork involved with this procedure can also be very tedious. In a situation of death, there are four basic options for you:
- Putting the house up for sale. The money after the sale of the home can be used to fully pay back the balance on the reverse mortgage. If the house value is less than you owe, you can sell it for 95% of its appraised value. The balance left after paying off your mortgage is yours to keep.
- Pay the loan amount should you choose to keep the home. You can take out a traditional mortgage on your home to finance the reverse mortgage.
- When you dont know what to do with the house or dont have enough to buy the house, your easiest option will be to deed the house to the lender.
- Your last will be allowing the lender to foreclose on the home. This will negatively affect your credit score hence the last after you have exhausted all other options.
You are free to sell your reverse mortgage house in Lexington, KY at will because you retain the property title. Its essential to know your homes current value before selling it because if you continue with the sale, your reverse mortgage becomes due. Your homes current value should be enough to pay the loan and cover the closing costs.
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Repay Your Reverse Mortgage
Start the selling process once a buyer makes an offer on your listed home. Once you accept the offer, your reverse mortgage lender and realtor will start with the closing process. It takes about one month or so. Revisit all the terms that your mortgage lender laid out initially.
When the sale goes through, your proceeds will have to be put towards the earnings on your reverse mortgage. From there, the equity and sale money are combined to cover the total selling price of your house.
If it covers the assessed market value of your home, the estate can be sold. Otherwise, the lender might suggest some other ways of selling a house with a reverse mortgage.
Pros Of Selling A House With A Reverse Mortgage
There are, of course, quite a few benefits of selling your house with a reverse mortgage. The most notable benefit is that, as mentioned before, there are no penalties involved when it is time for you to pay off your mortgage. Some mortgages penalize you when you decide to pay off the mortgage early, but not a reverse mortgage.
You can pay off this kind of mortgage as early as you want and you wont have to worry about any penalties. Another big benefit is that if there are any excess proceeds after the sale of your home, you get to keep them. Of course, you need to use a lot of that money to pay off the reverse mortgage first, but after that, you can keep the rest and do whatever you want with it.
As you can imagine, this would be an especially big benefit if you know that your home has only increased in price over the years. That way, youll have plenty of excess money to deal with. But what if your house has decreased in value?
In that case, you still wont need to pay any difference between the original mortgage cost and the price that your home sold for. Instead, youll only have to deal with the mortgage balance. As you can imagine, this can help you out quite a lot financially.
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Reasons For Exiting A Reverse Mortgage
There may be personal or financial reasons someone would want to get out of a reverse mortgage. Some common reasons include:
- You may need to move into a nursing home or assisted living.
- You have buyers remorse.
- You realize your reverse mortgage proceeds arent enough to stay current with your homeowners insurance, property taxes and home maintenance costs.
- Youve decided you want to leave the home to your heirs and dont want them to have to purchase it.
- You live with someone who is not on the loan, and they could be kicked out of the home if you pass away or move out.
- You no longer need the financial assistance of a reverse mortgage to supplement your income or make repairs to the home.
Whatever your reason, know that you have options. Taking the time to consider why you want out of this type of loan will help you choose the right way to do so.
Do My Heirs Have To Pay Off My Reverse Mortgage Loan Out Of Their Own Pockets
No. Your heirs can refinance the loan balance with a traditional loan with no out of pocket costs, or they may sell the home and keep the equity. Your heirs would never have to come up with out of pocket money to pay the loan balance, which is federally insured. If the balance exceeded the value of the home, the FHA mortgage insurance would kick in and pay the difference.
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Is A Reverse Mortgage A Good Idea
A reverse mortgage can be a good idea if you plan to live in your home for a long time. If you plan on moving in the next several years, though, you might be better off simply selling your home or finding an alternative source of income. There are fees and up-front costs associated with a reverse mortgage.
A reverse mortgage also isnt a good idea for homeowners who want someone to inherit their home after they die.
Why Sell A Home With A Reverse Mortgage
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 trigger a maturity event yourself . Or a maturity event might be reached automatically, due to the homeowners death or illness.
Maturity events that require reverse mortgage payoff:
- Choosing to sell
- Illness that requires a move into assisted living or a nursing home
- Unpaid property taxes or HOA fees
- Home in disrepair
If youre being forced to sell due to a maturity event, stay in contact with your lender to prove youre actively trying to sell your home. If your lender thinks youre not actively trying to sell after a maturity event, they may take action, like starting foreclosure proceedings.
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Would You Benefit From One
A reverse mortgage might sound a lot like a home equity loan or line of credit. Indeed, similar to one of these loans, a reverse mortgage can provide a lump sum or a line of credit that you can access as needed based on how much of your home youve paid off and your homes market value. But unlike a home equity loan or line of credit, you dont need to have an income or good credit to qualify, and you wont make any loan payments while you occupy the home as your primary residence.
A reverse mortgage is the only way to access home equity without selling the home for seniors who dont want the responsibility of making a monthly loan payment or who cant qualify for a home equity loan or refinance because of limited cash flow or poor credit.
If you dont qualify for any of these loans, what options remain for using home equity to fund your retirement? You could sell and downsize, or you could sell your home to your children or grandchildren to keep it in the family, perhaps even becoming their renter if you want to continue living in the home.
Who Owns The House After A Reverse Mortgage
While this is certainly a more unusual way of purchasing a home, no one else will own the house after a reverse mortgage but the homeowner who has taken the loan.
If the homeowner decides to move away and sell, theyll be liable for the full loan repayment until the sale is completed and the loan and interest are paid off.
If, on the other hand, the homeowner passes away , their heir will inherit the property and will be liable to pay off the amount owed by selling the house.
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How Often Does A Home Sell For Less Than The Mortgage Balance
This is extremely rare. HomeEquity Bank wants to ensure that the chances of this happening are slim, so they never lend more than 55% of the homes value. In fact, in over 30 years 99% of their customers have had equity left in their home and on average there is over 60% equity remaining.
Increases in real estate value also help to boost the equity in your home and reduce the impact of interest charged to the mortgage principal.
How Should I Deal With A Reverse Mortgage When The Owner Dies
If youre the heir to a reverse mortgage taken out by someone who has recently passed, here are the steps youll need to take in dealing with a reverse mortgage when the owner dies:
- Take a deep breath. You have a full month before you need to deal with your newly inherited property. Take some time to grieve before overwhelming yourself with reverse mortgage proceedings.
- Contact the mortgage company. Within 30 days, you must send the lender a death notification with the name and account number of the deceased, the date of their passing, and an attached death certificate, stating that you are the heir to their estate and wish to know the remaining balance on the reverse mortgage.
- Inform the lender of your decision. 30 days after the mortgage company provides you with the due and payable notice for the loan, respond to them stating how you intend to pay off the balance.
- Close the loan on time. Make sure to settle the debt within six months of your loved ones passing or ask for extensions if you need more time to sell the house. Failure to meet the necessary deadline can lead to foreclosure.
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