How to sell a house with a reverse mortgage

Some homeowners assume that they can’t sell their home with a reverse mortgage, but that’s not true. Although the lender may be paying you instead of the other way around, they can’t force you to keep the house if you don’t want to. The house is still yours and you can decide to sell it at any time.

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You may want to sell your home to downsize, move to a warmer climate, or be closer to your children. In some cases, selling your home may be necessary – such as when you may need to move to an assisted living facility or receive full-time care at a family member’s home. 

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However, selling a house with a reverse mortgage comes with a few conditions. It’s important to let your lender know of your intention to sell, actively market your property, and meet all deadlines outlined in the seller’s agreement to avoid any legal trouble.

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You should also continue maintaining the home and paying your property taxes, homeowners insurance, and HOA fees to avoid foreclosure. As long as you follow the rules around selling a house with a reverse mortgage, the home sale process should be fairly similar to selling a home with a traditional mortgage. 

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In this blog, we’ll discuss everything you need to know about selling a house with a reverse mortgage including how it's possible, conditions to keep in mind, steps to a successful sale, and selling alternatives.

Can you sell a house with a reverse mortgage?

Selling a house with a reverse mortgage is possible as long as the title is in your name. In fact, that’s often what happens after the homeowner has passed on. As long as the loan is repaid, there’s no penalty for selling beforehand. 

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Your lender can neither force you nor keep you from selling your home. However, since a reverse mortgage is considered a lien, your lender has a right to know about the home sale. 

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Whether you have a Home Equity Conversion Mortgage (HECM) backed by the FHA, or a proprietary reverse mortgage offered by a private lender, you’ll need to consider two factors before selling: the fact that you’re selling a home with a lien and the value of the home at the time of sale. 

Selling a home with a lien

Selling a home with a reverse mortgage means you’re selling a home with a lien. A lien is a legal claim by a creditor against a property’s title. Liens are usually placed on property titles due to unpaid debts. It’s important to address any liens on a property before listing it to make sure the title can be transferred seamlessly at the time of sale.

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Liens can be resolved by either satisfying the debt or negotiating debt terms with the creditor. Both can impact the final sale price of a home with a lien.

Selling a home with appreciated value vs. an underwater mortgage 

Another factor impacting the price of your home is whether the property has appreciated or is underwater, also known as being upside down on a reverse mortgage. 

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When a property has appreciated, the home’s value will exceed the outstanding balance on the reverse mortgage. However, if the property has depreciated, you could end up owing more than what your home is worth. This is also known as an underwater mortgage. Fortunately, you will almost never owe your lender anything over the value of your home because a reverse mortgage is a non-recourse loan. 

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Selling a home with a reverse mortgage that is underwater is a bit more complicated than selling a home with appreciated value. Assuming your home sells for its appraised value, your reverse mortgage lender would receive all proceeds from the sale. Mortgage insurance would pay for the difference. In this case, you wouldn’t make a profit – but again, you would not have to pay the lender any additional funds. 

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Selling a home with a reverse mortgage when the home has appreciated allows you to sell your home, clear your reverse mortgage debt with a portion of the profits, and keep the rest. Keep in mind you’ll need to pay interest and fees on the reverse mortgage, as well as commissions to your listing agent. 

5 steps to selling a house with a reverse mortgage

Once you’ve determined selling your house with a reverse mortgage is worth it, follow these five steps for a successful sale.

Talk to your lender

As mentioned above, you can’t sell a house with a reverse mortgage without letting the lender know. The first thing you want to do is inform your reverse mortgage lender of your intention to sell and request a payoff quote. This quote will reveal your reverse mortgage loan balance, accrued interest, and related fees. 

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Within 30 days your lender should send you a due and payable letter specifying the total amount owed, repayment options, the number of days you have to respond, and steps to avoid foreclosure. Your lender will also send an appraiser to your house to determine the property’s value. 

Find an experienced agent

After talking to your lender, hire an experienced real estate agent who has previously sold homes with reverse mortgages. Your agent should help you determine how much your home is worth and how much of a profit you could be able to make on your home sale. Since selling a home with a lien can be complicated, some buyers also hire a real estate attorney to make sure the reverse mortgage is cleared during or before the closing process.

List your home 

Once you’ve discussed the details of your home sale with your lender, agent, and attorney, you can put your home up for sale. It’s important to let potential buyers know that your home has a lien on it and that you plan to pay it off before transferring the property title. 

Sell your home and pay off your reverse mortgage 

After you sell the home, you pay off the loan you have with your reverse mortgage first and then cover closing costs. The rest of the home sale will go to you. It’s always a good idea to double-check with your lender to confirm that your reverse mortgage loan is effectively paid off. 

Alternative options to selling a house with a reverse mortgage

Selling a home with a reverse mortgage may not be the best decision for everyone. If that’s the case and you need additional funds, you can look into the following alternatives.

Consider a short sale

Reverse mortgages are taken out on homes that have accumulated equity over time. However, if home values in your area suddenly plummet, you can end up with an underwater mortgage after having obtained a reverse mortgage. In this situation, it may be best to consider a short sale instead of selling a house on the market. 

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Short sales can help homeowners with an underwater mortgage avoid foreclosure, minimize credit damage, and clear their debts with their reverse mortgage lender. However, you’ll need to obtain your lender’s consent before moving forward.

Explore government programs and grants

When you take out a reverse mortgage, you agree to continue living on the property and keep up with home-related expenses such as property taxes, homeowner’s insurance, and regular maintenance. If you’re considering a home sale to eliminate or reduce these expenses, look into property tax abatement programs for seniors or government-funded home improvement loans. You can search for these programs at the local, state, and federal level. 

Refinance your reverse mortgage

Another way to increase your cash flow is by refinancing your reverse mortgage. A reverse mortgage refinance allows you to replace your existing mortgage with a new one on more favorable terms. Refinancing can help you pay off your reverse mortgage or change the type of reverse mortgage you have. It can also help you secure additional funds through a home equity loan, line of credit, or secondary mortgage.

Pay off your balance with an HEI

Homeowners with appreciating home values are in a great position to take advantage of a Home Equity Investment (HEI). An HEI can help you pay off your reverse mortgage balance and acquire additional funds without having to make any monthly payments. 

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HEIs come with flexible borrowing terms that allow non-traditional borrowers access to a lump sum of cash in exchange for a percentage of their home’s future appreciation. Repayment can take place anytime during a 30-year term or at the time of sale. Unlike a reverse mortgage, HEIs are assumable, which can make them an appealing option for homeowners looking to pass the property to their heirs. 

Final thoughts on selling a house with a reverse mortgage

Selling a home with a reverse mortgage is possible as long as you hold the property title. However, since your reverse mortgage lender holds a lien on your property title, you’ll need to notify them of your intent to sell. If you want to downsize, be closer to family, or move into assisted living, selling your house with a reverse mortgage may be a good idea. However, if your primary motivation to sell is to acquire additional funds, there are several financial alternatives you can explore without feeling pressured to let go of your home. 

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Acquire additional retirement funds with a Home Equity Investment from Point. Borrowers benefit from no monthly payments, flexible credit evaluations, and the ability to use the funds at their discretion. Explore Point’s HEIs here.

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