Conditions for Selling a Home with a Reverse Mortgage Without Losing It

For many homeowners, a reverse mortgage can be an invaluable financial tool, allowing them to tap into the equity in their homes and either supplement their retirement income or cover healthcare expenses. However, what happens when these homeowners decide to sell their homes? This article will explore the conditions under which one can sell a home with a reverse mortgage without losing it.

Understanding Reverse Mortgages

A reverse mortgage is a loan designed for older homeowners, typically those aged 62 and above, that allows them to borrow against the equity in their homes without having to make monthly payments. Instead, the lender pays the borrower, and the balance of the loan is paid off when the property is no longer the primary residence of the borrower, such as upon the borrower's death or move-out.

Selling a Home with a Reverse Mortgage

When it comes to selling a home with a reverse mortgage, there are several key conditions:

Equity and Proceeds from the Sale

When a homeowner wishes to sell their home, the first step is to determine if there is equity left over after the reverse mortgage has been repaid. This process involves:

Obtaining a new appraisal of the home's current market value. Calculating the remaining balance of the reverse mortgage. Subtracting the closing costs and any unpaid property taxes from the sale proceeds.

Equity Situation

If the home's proceeds from the sale are greater than the amount owed on the reverse mortgage, the borrower can keep the remaining proceeds after settling the outstanding mortgage and closing costs. However, if the equity is insufficient, here are the guidelines to follow:

No Equity Scenario

In cases where the sale proceeds are insufficient to cover the outstanding reverse mortgage, the homeowner should contact their lender or loan servicer. They can then arrange to surrender the house. Following an appraisal, the lender will take possession of the property.

Borderline Equity Scenario

If there is a possibility that the home's sale proceeds might just cover the outstanding mortgage, the homeowner should put the house up for sale. They should then receive an offer and, upon receiving it, contact their loan servicer to explain the situation. The servicer will work with them to ensure the net sales price equals the amount owed, after subtracting customary closing costs and unpaid property taxes.

No Recourse

It is crucial to understand that there is no personal recourse against the borrower if the sale proceeds are insufficient to settle the reverse mortgage. This protection is provided as long as the borrower has complied with the terms of the loan, including maintaining the property in reasonable repair and paying annual taxes and insurance.

Continuing to Live in the Home

If the homeowner is physically able to continue living in the home, it is advisable to do so as long as possible. This prolongs the life of the reverse mortgage, which in turn prevents the need to repay the loan immediately. Homeowners must pay property taxes, insurance, and maintain the home while living in it.

Planning for Future Sale

Additionally, some homeowners choose to sell the home and pay off the reverse mortgage to leave a valuable asset, such as the home, for their children. If this is the homeowner's intention, they should put the house up for sale and follow the same procedures as described above to ensure they can settle the reverse mortgage without losing the property.

It is important to note that understanding the specific terms and conditions of the reverse mortgage is crucial. Homeowners should work closely with their loan servicer and financial advisor to ensure they are following all necessary steps and making informed decisions. By doing so, they can secure the future of their financial and living situations.