Can I Sell A House As Is With A Reverse Mortgage?
How much will a reverse mortgage affect my home sale?
The Short Answer:
You can sell your house as is with a reverse mortgage as long as you coordinate and cooperate with your bank loan servicer. You’ll still be responsible for the remaining balance owed, but the return from the sale will go directly towards paying it off, and if sold correctly could pay it off entirely.
What Is A Reverse Mortgage?
The most common reason why people enact reverse mortgages is they want to retire. A reverse mortgage enables the home seller to change their home’s equity into a lien, which allows them to receive monthly payments.
With a traditional mortgage when buying a home, every payment you make results in gaining equity in that property. With a reverse mortgage, in exchange for incremental payments to you, you give off small amounts of equity in your property.
It’s important to note: When you take out a reverse mortgage your property’s title remains in your name. You remain the owner, meaning you’re well within your rights to sell your house.
Selling a home that’s tied to a reverse mortgage is similar to selling a property with a traditional mortgage. When selling a property with a regular mortgage you need to pay the full amount that you owe on your mortgage. It’s the same with a reverse mortgage.
The Why Of Reverse Mortgages
For homeowners aged 62 and over, reverse mortgages are a way to benefit from the equity they’ve accrued while staying at their home for as long as possible. However, this often brings up the question, what if they end up wanting to sell their house?
They may want to move into a home that’s in a more convenient location, or move in with family. When the daily management of their home becomes too difficult for them to want to deal with, they may just decide to move into a retirement community or assisted living facility.
Selling A House As Is With A Reverse Mortgage
Ultimately, selling a home with a reverse mortgage is similar to any other home sale. However, there are unique challenges that sellers face when selling a house as is with a reverse mortgage.
When you make an agreement with your banking servicer on selling your house as is, you’re going to have to adhere to that agreement strictly. If the lender feels that you are not actively trying to sell, but are merely using the agreement as a loophole to avoid dealing with the cost, you could be facing the possibility of foreclosure.
However, if you follow all the conditions of a reverse mortgage the process of selling your house as is can be trouble free.
Maturity Events And Reverse Mortgages
When you sell a home with a reverse mortgage tied to it, depending on circumstance, it can trigger what is known as a maturity event, in which advances on the reverse mortgage stop and the balance accrued to becomes due.
Other Examples Of Circumstances That Can Trigger Maturity Events:
- Serious illness or the decision to move to an assisted living facility.
- Home is in disrepair.
- Unpaid property taxes or HOA fees.
It’s imperative to be aware that if a maturity event is triggered, then your lender needs to be consistently assured that you are in full cooperation of paying off the debt you owe from the reverse mortgage.
What You Need To Know Before Selling Your House As Is With A Reverse Mortgage
There are a few crucial details that are involved in reverse mortgages when it comes to selling.
To sell your house as is, you’ll need to have a clear idea of how much you owe on your reverse mortgage versus how much your property is currently worth. Those numbers will directly affect how much your lender will be likely to accept as a payoff.
The lender will often accept 95% of your home’s appraisal value or your entire loan balance, whichever is less. A potential hold up in this situation is awaiting the lender’s approved appraisal of the home’s value. Until you have that appraisal, you can’t know for certain what amount your lender will be willing to accept as a payoff.
When Selling Your House As Is Becomes An Issue
Selling your home with a reverse mortgage is significantly easier if your property has increased in value over time. In this case, you’ll have enough equity you can use to pay off the loan, and the situation has significantly less red tape.
It’s a bit trickier if your home’s value has dropped over time to a value less than what you owe the lender. For example, your real estate broker can’t list a property for a price that is less than what you owe your lender. The only way out of this complication is to make up the difference at the time of the sale. Unfortunately this means walking away with less money in your pocket.
How To Sell Your Home As Is With A Reverse Mortgage
Step 1: Speak To Your Loan Servicer
Ultimately, the date that the maturity event is triggered is dependent on the lender. It can either be the date that the homeowner puts their property up for sale or the date when they accept an offer.
Step 2: Get set up to sell a house fast
There are several techniques to consider when selling a house that can both fit in the timeline budget of your lender and still yield a satisfying return. Selling your house as is doesn’t necessarily mean settling on price.
We recommend taking a look at a comparison we made in a blog article comparing the different techniques of selling a house, discussing which options are faster and which put the most money in your pocket.
Step 3: Pay Off The Balance Or Set Up A Repayment Plan
Technically, you’ll need to pay the balance of the reverse mortgage immediately upon the occurrence of a maturity event. However, depending on the terms of your loan contract, you may get an extra 6 months to pay. That means a total of six months to sell the property. you also may be given two optional three-month extensions.
If you find you need more time, make sure to request an extension well before the due date of the repayment. It’s also smart to ask for written proof of the extension approvals from the loan servicer.
Alternatives To Reverse Mortgages
If you don’t have enough equity in your home to cover what you owe on your reverse mortgage, you may need to use your savings. But if you don’t have any savings, you may be left with these options:
With a short sale, you will sell your home for less than what you owe on your reverse mortgage. “With a reverse mortgage, the lender cannot go after you or your heirs for the difference between the outstanding loan amount and the final sales price”.
However, you will need the “lender’s buy in” for you to list your property at a lower price. It’s likely that they will require an appraisal to verify the value before they agree that you can list your home.
Staying Where You Are
Unless you are going to make some money from selling a home with a reverse mortgage, it may be best to stay put. Of course, this doesn’t apply to individuals who have to move for medical needs.
Paying Off The Loan
This may mean finding alternative financing, whether it be a borrowers family member or another source of funding.
Deed In Lieu Of Foreclosure
If you can’t sell your home after a maturity event, and you don’t want to risk foreclosure you can in some cases deed the home back to the lender and walk away – without the property, but at least you won’t have a foreclosure on your credit report.
Individuals who have inherited a property often take this route if they feel that the amount they’ll receive from the house isn’t worth the trouble of going through the listing process.
Important Notes To Keep In Mind Regarding Your Choice To Sell Your House As Is With A Reverse Mortgage
- Understand the lien placed on your before you make the decision to sell.
- Have in mind that if a maturity event is triggered and you need to pay off your reverse mortgage, you will never owe the lender more than 95% of what the current appraised value, or the unpaid loan balance is; whichever is less.
- Your lender will give a quote for what proceeds will be left after the sale of your house, but this estimate could expire.
- Heirs who would prefer to keep hold of the property than sell it with a reverse mortgage, could be able to get alternative financing.
- Ensure that your property is maintained according to FHA housing standards before you list your house as is on the market. This means there are no repairs that need doing to your electrical system, your roof, and major systems like water heaters are in good working order.
Despite taking a reverse mortgage, you can still sell your house as is, first by listing your home for sale triggering a maturity event, then telling the loan servicer that date you plan to list your house as is.You will owe the total balance of the reverse mortgage loan upon selling your house as is or 95% of the appraised value if the debt is more than your home’s value.