Home Reverse Mortgaged? Here's How to Sell It

By Anum Yoon on 23 December 2016 2 comments

Reverse mortgages are becoming more and more popular as the U.S. population ages. In a reverse mortgage, instead of having to make a monthly payment on a mortgage until it is paid off, a homeowner receives an amount from the equity in their house every month.

Reverse mortgages are often a boon to senior citizens living on a fixed income. It essentially removes the need to pay a mortgage every month by converting existing equity in a home into income that covers the mortgage. Reverse mortgages are available only to people 62 years of age or older.

The downside, of course, is that reverse mortgages have the opposite effect on equity in the house that conventional mortgages do: They draw from it rather than adding to it. At the end of a reverse mortgage, there may be little or no equity left in the home.

Steps to Sell the Home

Given that, how do you sell a house with a reverse mortgage? After all, at some point the senior citizen may want to move into an assisted living facility or in with children. They may also pass away, and their heir is left with the task of selling the property.

It's actually easier than you might think to sell a house with a reverse mortgage. Here are 10 steps you'll need to consider.

1. Know How Much Is Owed

The most important first step is to find out how much is owed in the reverse mortgage. The amount will include moneys paid out by the bank, plus fees and other charges.

2. Check the Paperwork

Read over the paperwork from the bank that made the reverse mortgage. You need to know the interest rate, any fees if the loan is paid off in full, and any other charges.

3. Look for Liens

Double check to ensure there are no other liens on the house. This is important because it can make a huge difference in any equity remaining in the house.

4. Ask for a Payoff Quote From the Lender

A payoff is the amount required to, as the term implies, pay off the reverse mortgage in full. It differs from how much is owed because of fees and other charges. You need to ask for this figure in writing.

5. Estimate What the Home Is Currently Worth

There are two possible scenarios here. One is if the house is worth more than you owe. It may have appreciated in value, or the reverse mortgage was not in effect for a long period of time — or both. In that case, you can sell the home just as you would sell any other home and realize the net appreciation between what is owed and what it sells for.

The other scenario? The house may not be worth what is owed on it, or the market value may be so close to what is owed that you will lose money on any sale. You are underwater on the loan.

In the latter case, you have two options. One is to try to rent the house to receive income from it. The other is to see if the reverse mortgage can be converted into a regular mortgage. If it can, you begin making mortgage payments on it and build up equity in the house, just as you would with any house purchased.

6. Make the Sale

If a sale does make financial sense, you proceed just as you would with any home sale. You can arrange for a private sale, or work with an agent. Most agents will charge approximately 6% of the sale price to list and show your home. Remember that what is owed to the bank for the reverse mortgage has to be paid when the house is sold.

7. Make Repairs

Take care of any needed repairs or maintenance on the house to get it ready to show. If you are selling it privately, make a plan for where you will advertise and show it.

8. Hire a Lawyer

Because of the complexity of reverse mortgage sales, hiring a lawyer is likely a prudent move. A lawyer can ensure the terms of the sale are the most advantageous they can be for you. In some locations, a lawyer is required in a real estate transaction that involves any type of loan. Be sure to check any requirements in your area. Finally, the payoff of a reverse mortgage must be handled by an experienced person, and many lawyers are experienced in this area.

9. You — or the Buyer — Pay Off the Reverse Mortgage

Be aware that any buyer will need to have either cash to make the purchase or have financing in place if you do not have the money to pay off the reverse mortgage. They will essentially be providing you with the money to execute the payoff.

10. Close the Sale of the House

Issue the bank the payoff amount. You are finished selling the home with the reverse mortgage.

As reverse mortgage become used more frequently by senior citizens, the need to sell homes with a reverse mortgage will become more common. These 10 steps will ensure you sell the house in the correct way.

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Guest's picture
Guest

This is not good advice -- in fact, if people followed one element of this advice, they would go from a relatively bad situation to a terrible one. If the house is underwater, and is a non-recourse reverse mortgage (they usually are), the mortgage lender can only access the house as equity - nothing else. So turn the house over to the lender, whose problem it legally is, and be done with it. It would be unnecessary financial risk or possibly financial suicide to either rent out a house whose mortgage is underwater (because being a landlord is sometimes unpredictably expensive and definitely always weird) or OMG I can't even believe the author said this: "convert the reverse mortgage to a regular mortgage". I mean.... really????? Put your own personal financial life further on the line for a failed asset that has already appreciably declined, and thus is more likely than an average house to never pay off in appreciation? Do not do that, under any circumstances. The house will still be underwater; probably more so because of various transaction fees in converting, but the new mortgager's responsibilities will have increased exponentially -- the bank will have a much firmer grip on the borrower's future with a conventional mortgage than a reverse one.

Shame.

Guest's picture
Jessica

A lot of negative comments below. The reverse mortgage program has saved my parents retirement.

Myths:
Expensive
The bank owns the home
Heirs won’t inherit anything

We found comparison website, click quote save dot com, that found us a lender who charged $0 upfront fees (savings of $6k).
There was no haggling involved just tell them you don’t want to pay any upfront fees.
The title/ownership remains in my parents name and if home values increase I will inherit the remainder of the equity.

My parents are saving $24k/yr by not having a mortgage payment, and I don’t have to worry about their financial situation. They don’t need my assistance, everyone wins.

If home values decreases or they live for another 30 years I’m perfectly happy not inheriting any $ or the home. I just wanted them to have a comfortable retirement.

Don’t believe all the negative comments without doing your research first. Like any other service and industry there are good lenders out there.

Thank you all, and best of luck.
Jessica