Selling Your House With a Reverse Mortgage

A reverse mortgage, or Home Equity Conversion Mortgage (HECM), is a loan using the equity in a home.  Seniors commonly use a reverse mortgage to leverage the equity in the home they plan to stay in to receive payments from the bank.  This type of loan is best used if the borrower has no plans to move since one of the ways a reverse mortgage becomes due and payable is when the home is sold.  

But life happens, and sometimes plans change.  There could be a number of reasons why this might happen.  Moving closer to family, downsizing, moving to a retirement community, or moving to new location altogether are all reasons why seniors may decide to sell after getting a reverse mortgage.

So what happens if a homeowner has a reverse mortgage and wants to sell?  It’s definitely possible, but there’s a few things to keep in mind during the process.

1. Know your loan balance.  This is fundamental for homeowners planning to sell with a reverse mortgage.  There are basically two scenarios that may play out:
1. Your home is worth more than the balance of your loan.  If your home has appreciated in value, this is great news!  Once you pay off the balance of your reverse mortgage, you get to keep whatever is left.
2. Your home is worth less than the balance of the loan.  If your home has depreciated in value, this can obviously be stressful.  However, a reverse mortgage has some homeowner protections in place.  Since a reverse mortgage is a non-recourse loan, this means that the borrower can never owe more than the value of the home.  In this case, the proceeds of the sale of the home would be used to pay the loan.  The mortgage insurance (which the homeowner paid when closing the reverse mortgage) will help make the bank whole.

1. Get an appraisal.  Once you know the balance of your loan, it’s important to understand the value of your home.  Housing markets change constantly, so the value of your home may change at different points in time.  What matters most is what the value is when a homeowner wants to sell.  This will help determine if any money - and how much - will be leftover after the sale of the home and paying back the loan.
2. Start the process of selling.  This part would play out similarly to selling a home with a traditional forward mortgage.  You can sell by owner or hire a realtor.  Keep in mind that it may be easiest to work with a realtor that has closed homes where the owner has a reverse mortgage to ensure closing is smooth and there are no unexpected surprises.  
3. This may go without saying, but the reverse mortgage must be paid off first after the sale of the home.  Once closing is complete and the reverse mortgage is paid off, the borrower should definitely confirm this with the lender just to be sure.  I’d recommend getting it in writing.

That’s how a home is sold with a reverse mortgage.  I do think it’s important to point out that if you have plans to move or sell your house in the near term, a reverse mortgage might not be the best choice.  However, if you do have a reverse mortgage and things change, a sale is possible.  

It’s also helpful to consider how to navigate changes with a reverse mortgage without the sale of the home.

If you are moving to downsize or to purchase more modern house, could you use the money from a reverse mortgage to renovate your current home?

If you are considering moving due to healthcare reasons (such as an assisted living facility), could a reverse mortgage help pay for in-home care?

These are just a couple of questions that may be helpful to review if the situation arises.

Of course, we can’t cover everything that might pop-up in this blog post.  However, if you have  reverse mortgage questions, it’s helpful to connect with an expert.  I’d recommend reaching out to Equity Access Group.  This is a team that specializes in reverse mortgages, and they can help you learn how it works for your specific situation.