Most retirees prefer to age in their homes, causing them to get a reverse mortgage. A reverse mortgage enables homeowners to access equity without needing to sell. However, what do you do if you have to sell a house with a reverse mortgage?
This article is for you if you are a homeowner with a reverse mortgage. It can also be useful to those helping a loved one sell their house with a reverse mortgage or those that have recently inherited one.
Most reverse mortgages fall under the home equity conversion mortgages, which ensures they are controlled by the Department of Housing and Urban Development and the Federal Housing Administration. To get a HECM reverse mortgage, you need to meet the following requirements:
You should note that while HUD and FHA oversight has helped to drastically decrease the availability of predatory reverse mortgages, they still exist. Nevertheless, this article concentrates on the HUD and FHA-supported reverse mortgages.
FHA Loans are great financial products that are more commonly used by first-time homebuyers. You’ll see them used more often in these cases versus a reverse mortgage, yet it’s still possible. An FHA loan may appear strict and inflexible at first, but there are options for homebuyers to use them even in tough financial situations. If you’ve wondered if can I get an FHA Loan with a bankruptcy, the answer is yes. Of course, you’ll have to work with your lender to meet the necessary requirements. Surprising to many, you can use an FHA loan after being bankrupt.”
A reverse mortgage loan enables you to convert your house’s equity into a lien and receive a monthly payment. Compared to a typical mortgage loan that lets you gain equity every time you pay, a reverse mortgage does the opposite, causing you to lose equity each month when you receive a monthly payment, hence the name.
The simple answer is, yes, you can sell your house with a reverse mortgage loan. It is perfectly legal as it is your home, and only you hold the rights to sell it.
As with a traditional mortgage, the homeowner has the title, but there is a lien on it. The moment you choose to sell your house, you pay the outstanding balance to your lender and keep the remaining equity.
If you sell your house with a reverse mortgage, you must ensure sufficient equity to cover the closing costs and pay off your mortgage loan balance.
The sale process is relatively the same for a reverse mortgage borrowers and those with a traditional mortgage; however, a couple of pertinent differences exist when selling your house with a reverse mortgage.
Getting a reverse mortgage means that when you sell your house, you work with your lender to create a time frame to sell. Furthermore, both parties agree on a fair value for the house.
Considering that the government underwrites reverse mortgages, they fall under the category of non-recourse loans. This means that you don’t owe more money than your house is worth. Basically, you cannot go into debt on a reverse mortgage so long as it is HUD and FHA-backed.
Unlike a typical mortgage that lets you gain equity with every mortgage payment, a reverse mortgage causes you to lose equity, thereby increasing your debt profile. This can lower the amount you net when you sell.
Selling your home with a reverse mortgage generally happens when a maturity event happens. Your reverse mortgage becomes due when a maturity event is triggered. A maturity event can be triggered automatically due to illness or death. You can also trigger it yourself.
If you are required to sell because of a maturity event, you must remain in contact with the bank to show that you are indeed actively trying to sell the house. Failure to do so, or if your lender believes you aren’t actively trying to sell the house after a maturity event, could cause it to take action, such as filing for foreclosure.
As stated earlier, the selling process is similar to how you would sell a house with a typical mortgage.
The first step should be speaking to your lender to gain a loan payoff. This amount estimates how much you owe to the reverse mortgage lender once you close on the house. The amount will also include fees. Generally, the mortgage loan payoff will include the amount borrowed, plus unpaid charges and interest prorated at closing.
Use the steps below:
If your debt exceeds the appraised value, you will owe 95% of the debt, with the extra 5% covered by insurance. If you owe less than the appraised value, you will owe the total debt of the reverse mortgage.
Your listing price must be based on your outstanding reverse mortgage balance, provided in your due and payable letter. You should also not forget to include closing costs. Should you sell to turn a profit, you might want to take into recent sales of comparable homes in your area and account for current market conditions.
Alternatively, you could choose to hire a real estate agent to help you set pricing. A real estate agent can also handle showing and help you negotiate with prospective buyers. Overall, they work to ensure the closing process is as smooth as possible. To aid a seamless process, you must inform the agent that you have a reverse mortgage. Or you can sell your house for cash.
You are legally required to hire a real estate lawyer in about half of the states; fortunately, that isn’t the case in Colorado, so you can save on costs. Nevertheless, it is wise to have legal counsel when handling a reverse mortgage sale since most people aren’t as familiar with the entire process. It can also be great to have a lawyer present during the sale process if you are selling an inherited house.
It doesn’t matter if you are selling with an agent or on your own; the process of listing a house with a reverse mortgage is the same as listing without one. Professional photos, powerful listing descriptions, ensuring the house is ready for showings, and open houses are essential if you want to find a buyer or you can also look for a company that buys houses for cash.
Once the house sale closes, the title firm sends a loan payoff amount directly to your lender. Ensure that everything is paid in full by double-checking your closing statement. The lender must transfer any excess proceeds to you.
USEFUL RESOURCES:
Can I Sell My House Before Paying Off the Mortgage?
If I Can’t Pay Mortgage, Can I Sell My House?
How to Sell a House With a Second Mortgage In Colorado
Can I Sell My House on Land Contract With a Mortgage?
Can You Sell a House With a Reverse Mortgage?
Can I Sell My House If I Have a Reverse Mortgage?
Can I Sell My House If Im Behind on Payments
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