When you first applied for your reverse mortgage, you were probably trying to plan ahead for your future, with long-term goals in mind. But no matter how much you plan, life can throw you an unexpected curveball, changing things down the road.
Whatever the reason, you may need to sell your home after taking out a reverse mortgage. Selling a home can be tricky under normal circumstances. It can be especially confusing if you have a reverse mortgage.
Thankfully, if you understand how a reverse mortgage works and the general sales process, it can make it much easier to sell your house and avoid many of the pitfall’s homeowners tend to make.
Let’s take a look at the steps involved in selling a home with a reverse mortgage, as well as some tips and tricks to make the sales process less stressful.
Communicate With Your Lender
Everyone knows that communication is key, whether you are years into a marriage or just starting out at a new job. The same holds true in your relationship with your lender.
If you know you want to sell your home, it’s probably a good idea to contact your lender so that you can get accurate numbers to work through right from the get-go.
For example, your lender can give you a formal payoff estimate so you can see exactly how much you owe on your reverse mortgage.
A mistake that many homeowners make is trying to sell their home too soon after taking out their reverse mortgage1. While sometimes it is unavoidable, getting preliminary numbers upfront can help you determine if you have enough equity built up to net a profit after your loan is paid off. In some cases, your lender may even charge a prepayment penalty for paying off your loan too early1.
Reach out to your lender is also beneficial because you can identify if your lender will require an appraisal of your home. In most cases, getting an appraisal is ideal (and required) because you will want to know if your home’s value has decreased at all and, if so, is it beyond what you owe on your home1.
If you are selling your home in response to a maturity event, you usually have 30 days to provide a copy of the report to your lender1.
Hire a Real Estate Attorney
While you are not required to hire a real estate attorney to assist you with your sale in some states, it is required in others1.
Regardless of your state’s requirements, it’s definitely a smart move to get an attorney involved to assist you with navigating the sales process, explain legal provisions and consequences in plain English, and help you to avoid costly errors along the way.
An attorney can also help you stick to a plan for your sale. One of the biggest mistakes homeowners fall into is not actively marketing their home, effectively stalling the sales process1. In certain situations, this can lead to legal consequences or foreclosure.
List Your Property for Sale
It’s important to complete a spot check of your home before you list it for sale to make sure any maintenance issues are remedied, and the home looks presentable before potential buyers see it.
Once you have your home prepped, it’s time to put it on the market and list it for sale. Make sure to utilize professional, high-resolution pictures and a variety of media (including social media, yard sign, 3D tours, etc.) to generate buzz about your property.
You can market your home yourself, but if you want it sold faster and with less headache you may want to invest in the services of a local real estate agent. An agent can also help you set the perfect listing price based on current market trends for your area.
Hiring a real estate agent also shows to your lender that you are actively trying to market and sell your home.
Closing and Settlement
Once you have an accepted offer for your home and everything has been approved, it’s time to seal the deal. Make sure to show up at the closing date on time and sign all the closing documents.
The closing finalizes the sale of your home and will also settle your loan payoff. The proceeds from the sale will be sent from the settlement agent to your lender to pay off your outstanding loan balance and cover any applicable fees.
The difference between the payoff, fees, and payment to other third-parties (such as your attorney fees and realtor commissions) are yours to do with as you see fit.
Things to Avoid in the Sales Process
Ultimately the decision to sell your home resides solely with you. If you do decide to sell your home, there are a few key mishaps you will want to try to avoid at all costs, when going through the sales process.
For starters, selling your home when you owe more than what your property is worth may not be the best solution1. Lenders sometimes refer to this as being “underwater.”
If you proceed to sell your home in this scenario you won’t net anything from the sale because there isn’t even enough equity to cover paying off your outstanding reverse mortgage balance.
A similar scenario could occur if you try selling your property too soon after you take out your reverse mortgage. Not only are you paying the upfront costs and fees associated with getting a reverse mortgage loan, but you may not have enough equity to really receive a profit1.
Both selling early and selling when you are underwater often follow a third common pitfall that homeowners selling a home with a reverse mortgage face: not having a plan. It’s important that you really do your research with the numbers before you embark on the sales process.
Consequently, if you don’t understand the terms of your reverse mortgage or where the sales figures truly lie, your transaction could turn into a financial disaster.
Summary
Contrary to popular belief, you can sell your home after you have taken out a reverse mortgage. However, the trick is to know your numbers before you get too far along in the sales process.
One way to get the upper-hand and ensure a smooth and successful sale is by communicating with your lender upfront your intentions to sell, that way you have all the preliminary numbers and can make an informed decision to proceed or not.
It’s also worth looking into hiring both a real estate attorney and local real estate agent. Both can help you to stick to your sales plan, avoid pitfalls throughout the process, and ensure your final numbers line up so that, in the end, you walk away with more money in your pocket.
Just be wary of selling your property if you are underwater or have recently obtained your reverse mortgage. While selling a home that has a reverse mortgage can seem stressful, that certainly does not have to be your experience.
Sources
1 Bond, C. (2021, May 19). How To Sell A Home That Has A Reverse Mortgage. Retrieved June 29, 2021, from https://www.forbes.com/advisor/mortgages/reverse-mortgage-sale/
