Forbes: What to Know About Selling a Home with a Reverse Mortgage

Because few people understand the intricacies of how a reverse mortgage works particularly when a borrower dies or moves out of the home secured by the loan, describing scenarios in which a home that has had a reverse mortgage on it can be a necessary exercise both for seniors who have gotten a reverse mortgage, for those considering one, or for family members that could be affected by a maturity event.

This is the impetus behind a new piece at Forbes revolving around how a home with a reverse mortgage on it can be sold, and what constitutes a maturity event particularly for an FHA-sponsored Home Equity Conversion Mortgage (HECM). However, there may be some scenarios in which a senior may want to sell their home prior to the loan coming due, which they are also free to do.

“Not only is it possible to sell a house with a reverse mortgage—in some cases, the home may have to be sold,” the column reads. “For example, if you die or have to move into an assisted living facility, the house would likely need to be sold. The same is true if your home falls into disrepair or you fall behind on property taxes, insurance payments or homeowners association (HOA) fees.”

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These are “maturity events” for the loan, and trigger a reverse mortgage’s due and payable status, the column explains. However, a maturity event is not the only scenario in which a home secured by a reverse mortgage can be sold, it says.

“If you decide you simply want to sell your home, you’re free to do so at any time without penalty,” the column reads. “Though the process for selling a home with a reverse mortgage is pretty similar to selling with a traditional mortgage, there are a couple of important differences to keep in mind.”

One such difference is that selling a home with a reverse mortgage on it will likely not net as much cash to the homeowner because of the loan’s negative amortization. This means that the amount of profit the seller receives will not be as high, since a reverse mortgage does not require mortgage payments and a borrower may have chosen to extract some of the equity to convert into spendable cash.

“On the other hand, if you’re able to sell your home for more than your reverse mortgage balance (including interest and fees), you get to keep the difference,” the column reads.

The article goes on to offer six “tips” for selling a home with a reverse mortgage. These include informing the lender as early in the process as possible; getting the home appraised once more to determine how the new value interacts with the remaining loan balance; hiring a real estate attorney in the states that require it; perform any necessary renovations and then listing the home after necessary repairs and upkeep is complete; and use the sale proceeds to settle the remaining loan balance.

Read the column at Forbes.

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  • Interesting that the article recommends that the homeowner get an appraisal at loan termination. The loan servicer would order an appraisal to be used for determining the value of the collateral for the purpose of loan payoff, and in fact would not accept an appraisal for that purpose ordered by the homeowner.

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