A new mortgage loan type was introduced in the early 1960s, which was specifically designed for senior homeowners wanting to access their home equity while aging in place. The product is called the reverse mortgage loan. It quickly became popular as it fulfills many borrowers’ needs.
However, borrowers might need to move out. Some move into full-time nursing home care, their children’s homes, or to other locations with favorable weather. Whatever the case, borrowers have questions about reverse mortgage homes for sale.
What Is a Reverse Mortgage?
Reverse mortgages allow homeowners older than 62 years who have paid off their mortgage to borrow part of their home equity as tax-free income. While the regular mortgage involves the homeowner making payments to a lender, the lender does reverse mortgage payments to the homeowner.
Homeowners who opt for a reverse mortgage do not make monthly payments nor do they need to sell their homes—so they can continue living in them. However, the loan must be repaid should the borrower die, move out permanently, or sell that home.
Most reverse mortgages are Home Equity Conversion Mortgages (HECMs), which have the backing of the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA).
To qualify for the HECM reverse mortgage, applicants must be:
- At least 62 years and older
- Living on the property as their primary residence
- Owners of the home outright or have a small mortgage balance
HUD’s and FHA’s oversight has helped reduce the prevalence of predatory reverse mortgages, but a few exist. This article focuses on HUD and FHA-backed reverse mortgages.
How Selling House with Reverse Mortgage Works
It is legal for the homeowner to sell a house with a reverse mortgage. Like the traditional mortgage, the title is still in your hands, but the lender has a lien.
When you sell the home, you pay the lender’s balance due at closing and walk away with the remaining equity. However, you must make sure you have enough equity to cover the loan balance payoff and closing costs.
The Difference Between Selling a House with Reverse Mortgage and Traditional Sales
The process is quite similar, but there are a few important differences with reverse mortgage homes for sale, including:
- Reverse equity – Traditional mortgage gains equity each month you pay the principal. You lose equity and increase debt each month they pay you in a reverse mortgage. This reduces the amount you get during a sale.
- Due and payable letter – During the reverse mortgage sale process, you must work with the lender to set a time frame for the sale and agree on the price.
- Non-recourse loans – Federal government-backed reverse mortgages are also known as non-recourse loans. You or your heir cannot owe more money than the value of the home, so there is no chance of getting overwhelmed on a reverse mortgage house. This is, however, only true for HUD and FHA-backed reverse mortgages.
Common Reasons to Sell a House with a Reverse Mortgage
In lender lingo, maturity events trigger the act of selling a reverse mortgage. A reverse mortgage comes due anytime a maturity event occurs.
Homeowners can trigger a maturity event, or it can be reached automatically. Typical maturity events that trigger a reverse mortgage payoff are:
- Unpaid HomeOwners’ Association (HOA) or property taxes
- Decision to sell
- Illness that requires the homeowner to move into a nursing home or assisted living
- The home is in disrepair
If you are forced to sell because of a maturity event, stay in touch with the lender to prove you are actively looking to sell your home. No communication may lead the lender into taking actions such as starting foreclosure procedures. This post on selling a house with a reverse mortgage contains frequently asked questions about the process and can be of help.
Ready to Make a Sale? Here’s How to Sell Reverse Mortgages
Selling a home with a reverse mortgage is like selling one with a conventional mortgage.
Step 1: Get in touch with the reverse mortgage lender
Get the estimate of the loan payoff amount and any fees. The payoff includes the borrowed principal, interest owed, and unpaid extra charges prorated to the expected closing date.
The steps involved are:
- You notify the lender 30 days before a maturity event for verification.
- The lender sends a due and payable letter to the heir or homeowner.
- You respond to this letter in 30 days, showing that you intend to sell the house.
- The lender will hire an appraiser to do an assessment of your property
You owe the total reverse mortgage debt when you sell, 95 percent appraisal value if the debt is higher, and an extra five percent in case of insurance is needed.
Step 2: Set the listing price
You must base the listing price on the amount you owe on your reversible mortgage loan balance in the due and payable letter. Factor in closing costs and consider the current market conditions and sales of comparable homes nearby.
Step 3: Bring in a real estate attorney
Half of all states require you to hire a real estate lawyer in this process. After all, these legal representatives are familiar with it. As a reverse mortgage sale is a delicate process, it is helpful to have an attorney by your side.
Step 4: List and sell the property
Make sure you include professional photos and a strong description of your property. Prepare your home for showings and open houses.
Step 5: Close and transfer funds
During closing, the title company sends the loan payoff amount to the reverse mortgage lender directly. Make sure the closing statement contains everything that must be paid off in full. Excess earnings, minus the closing costs, are transferred to your account.
Reverse mortgages allow you to age in place at home by turning your current home equity into a source of income. But things change, and you might look to sell the property. Reverse mortgage homes for sale differ from selling homes with a traditional mortgage or none. However, it is doable once you understand the process.
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