Homeowners who are 62 and older may use the equity in their property as collateral to get a reverse mortgage loan. If your application for a reverse mortgage loan is accepted, the lender will provide you with an advance on the equity in your house. The payout may come in a lump sum, a credit line, or regular monthly installments.
What Is A Reverse Mortgage?
A house with a reverse mortgage is still in your name, but you don’t have to make any monthly payments. You will pay off the loan with interest and fees when you move out of the house.
While a reverse mortgage seems like a no-risk way to get free cash, it is not. There are rules to follow.
Maintaining the property and keeping up with the HOA fees, homeowner’s insurance, and property taxes are still your responsibilities as the homeowner. Every month, interest and fees are added to the reverse mortgage loan total, reducing the equity in your house.
Because interest and fees are added to the loan’s outstanding balance each month, the total amount owed on the reverse mortgage loan grows throughout its course. You will ultimately wind up repaying more money than you initially borrowed. On the other hand, if the market value of your house went up at the same time, repayment may not be a problem.
Borrowers or their family members who inherited the home will be required to repay the debt in full at some point. Selling the property is the most common way to do this.
Why Would You Want To Sell A House With A Reverse Mortgage?
You may repay the loan at any time without penalty, so selling a house with a reverse mortgage should be relatively uncomplicated. You can sell it and downsize, move closer to your grandchildren, or have a much-needed change of scenery. You may also look into selling a home with a reverse mortgage if you require full-time care or need to go to an assisted-living facility. Selling a reverse mortgage home is your prerogative and no one else’s.
A maturity event is a term reverse mortgage lenders use to describe the circumstance that often prompts the sale of a home with a reverse mortgage. Your reverse mortgage balance becomes due once one of its maturity events has been achieved.
You can also bring about a maturity event yourself. For example, you are choosing to sell your home. Another way that a maturity event can occur is if the homeowner passes away or becomes very sick.
Can You Sell A House With A Reverse Mortgage?
Yes. As with traditional mortgages, you can sell your home whenever you want if you have a reverse mortgage. Some homeowners may discover they have to sell their homes in order to repay the loan.
Because you can repay reverse mortgages at any time without incurring any fees or penalties, you may use the funds from the sale of the property to quickly settle the loan balance. Keep in mind that the overall cost of the reverse mortgage consists of the loan amount, interest, and other expenses.
You can retain whatever is left after paying off the reverse mortgage if you make a profit more than the sum of the loan you took out.
However, if the value of your property has decreased, selling a house that has a reverse mortgage might be a more complicated process. If your home sells for an amount equal to or more than the appraised value, the lending institution will get the profits of the sale, and the mortgage insurance will cover any remaining balance on the loan.
A reverse mortgage loan is a non-recourse loan, which means you or your heirs can’t owe more than the home’s worth when the loan is due.
Steps To Selling A Home With A Reverse Mortgage
Follow these steps on how to sell a house with a reverse mortgage.
Contact Your Lender
Ask for a quote on how much it will cost to pay off the loan, including any money you have received, any interest built up, and other fees. Within 30 days, the lender will send a letter that says the loan is due and payable. The letter will include the current loan balance, options for paying back the loan, steps to prevent foreclosure, and the number of days to respond. Your lender will send a licensed real estate appraiser to the property to determine its worth.
Determine The Value Of Your Home
Get an appraisal to determine your home’s market value. If your property is worth less than the mortgage, selling it may be challenging. Some lenders won’t let you advertise the house if its current market value is less than the debt.
You won’t owe the difference between your loan debt and the selling price if you can sell your property. You’ll only owe the loan amount or 95% of the appraised value, whichever is lower.
In a growing market, these cases are unusual. Unless they’re neglected, most houses appreciate with time.
Find A Buyer
Spend time making repairs and preparing the house before advertising it to achieve the most profitable sale price. You want to make as much money as possible, yet most improvements don’t enhance house value dollar-for-dollar.
Take photos, advertise the listing, and show the house to prospective buyers. A real estate agent can assist you in determining what improvements are needed, pricing the home, and scheduling showings.
If it looks like you’re not aggressively marketing the listing, your lender might sue you.
Close And Settle
After closing, the title company will transfer the loan repayment money to your lender. Recheck your closing statement to confirm that you have paid everything in full. You should get any extra profits after settling all closing charges.
Optional Step In Texas
Texas doesn’t require homeowners to have legal representation in the reverse mortgage process, but a real estate attorney will be extremely valuable in this situation. An attorney will ensure that the title company transferred the correct sums and that the lender has closed your account. However, you will have to deduct their professional fees from any sales proceeds.
Alternatives To Selling
Stay Where You Are
If selling a home with a reverse mortgage won’t make you money, it’s best to stay where you are. Of course, some people need to move for a good reason, like having health problems or wanting to live closer to family.
Pay Off The Loan
After a maturity event, the heirs or the homeowner can pay off the remaining balance to keep the house. It usually requires alternative financing and letting the lender know about it.
Even if you’re getting the house as an inheritance, you still need to inform the lender how you intend to pay off the loan within 30 days of getting the due and payable letter. Most of the time, you can set up a payment plan. An heir has six months to pay back the debt.
Speak With Heirs
You don’t have to repay the reverse mortgage as long as you live there. If you need assistance with house maintenance or errands, ask your relatives. Instead of moving in with family, move them in with you.
Deed In Lieu Of Foreclosure
Sign over the deed to the lender. As a last resort, this option may be best for those who cannot afford or do not choose to own the house – all without a foreclosure on their credit report.
Look For Special Programs For Senior
Look into special programs for seniors who can no longer afford to maintain their homes before deciding to put your house for sale. Some programs include refunds on property taxes or low-interest loans for house upgrades.