Selling Your Home with a Reverse Mortgage
Just because you have a reverse mortgage on your home, doesn't mean you can't sell! While there are a few more steps and fees involved than selling with a traditional mortgage, selling is still an option if your home is no longer meeting your needs and you want or need to move.
If you're thinking about selling with a reverse mortgage, you will first want to contact your lender or servicer and request the full payoff quote in writing. This way you will know how much you owe and what additional fees you will be responsible for when you sell. Selling the home is a "maturity event" that triggers the full balance of the reverse mortgage to be due. If you decide to sell, you will also want to notify the lender to confirm what they consider the date of the maturity event. It's important to know the date of the maturity event because you are responsible for notifying the lender within 30 days of the event. Once the lender has been officially notified of a maturity event, they will send a "due and payable" letter in which you have 30 days to respond with your plan of repayment. It is important that you respond to the letter on time because a nonresponse allows the lender to pursue foreclosure on the home. You will typically have 6 months to repay the loan, though extensions can usually be requested if needed.
The next step is that the lender will send out an FHA-approved appraiser to determine the current value of the home. If your property has appreciated in value and you sell it for more than the payoff balance, the proceeds from the sale will first repay the reverse mortgage balance in full and then, after any fees and taxes associated with the sale are paid off at closing, any leftover funds are yours to keep.
If the home has depreciated in value and you owe more on your reverse mortgage than the home is worth, you can still sell. Reverse mortgages are non-recourse loans which means that neither the borrower nor their heirs are on the hook to pay back any portion of the loan beyond 95% of the appraised value or the sale price, whichever is less. If your home sells for less than what is owed, your lender will receive the proceeds from the sale and the remaining balance is covered by mortgage insurance backed by the Federal Housing Administration. You will not walk away with cash from the sale, but you also won't be responsible for coming up with money out of your pocket to pay off your balance.
These rules only apply to a specific type of reverse mortgage called Home Equity Conversion Mortgages which are backed by the FHA commonly referred to as a HECM. This is the most common type of reverse mortgage but if you have something different, you will want to speak directly to your lender to understand their rules and process. Our biggest tip when selling your home with a reverse mortgage is to stay in close communication with your lender throughout the process. If you want to talk about your options when selling your home with a reverse mortgage, just call, text, or email and we would be happy to walk you through the process.