Selling a house with a reverse mortgage is not too different from selling any other house. With a regular mortgage, once you sell the house, you must pay off the balance on the loan. The same goes for a negative equity reverse mortgage. You simply add the difference to the value of the house. But, there are some details that you may want to be aware of before signing on the dotted line.
Fees and costs
Before you begin selling a house with a reverse mortgage, it’s important for you to know all of your obligations and costs. These include any necessary repairs to the property and any additional payments you will be required to make. You also have to calculate additional fees for homeowners insurance, escrow accounts, private mortgage insurance, and any additional funds you will need for closing costs.
Debt amount owed
In most cases, the amount of equity that exists in a home is the total amount owed on the outstanding mortgage balance. When selling a house with a reverse mortgage, the equity is simply the current total of the debt amount owed on the property. If there are no heirs, the amount of equity is zero. However, if the heirs do exist, the equity can be increased by the amount of money the heirs are able to borrow.
Usually, the loan amount is the total amount of money that a borrower can borrow at any given time. It is also called the maximum amount of credit available. When selling a house with a reverse mortgage, you can choose to sell either the entire property or just the portion of it that is covered by the mortgage. The borrower can then pay back the mortgage using the proceeds from the sale.
Different lenders will have different payment terms. You will want to shop around with each lender to see what their terms are before you agree to sell your home. Generally, the lender within 30 days of the sale can agree to the terms or modify them. They can either accept the entire proceeds or only a part. The lender may also require the borrower to sell at an agreed price or at a price less than the balance of the reverse mortgage.
A general rule of thumb is that the equity balance is the total amount that homeowners owe on their mortgages plus the interest and principal balance. The borrower owes the mortgage principal plus the amount by which the remaining equity would be reduced if they paid off their mortgages. If the remaining balance does not come close to the principal balance, the borrowers may consider other options like passing the property to an individual, selling it under state law, or borrowing funds from a private individual or business to repay the outstanding balance.
If you have a spouse, children, or grandchildren who are financially attached to your home and owe the mortgage, selling it to a third party can help. You can hire a real estate agent to help sell your house, making an offer based on what your family needs (and is able to afford). The real estate agent can collect an acceptable price for the property and pay the mortgage debt to your heirs before the deadline specified in your original agreement. You can find out if you are eligible for this type of loan by talking to a licensed mortgage broker or the Department of Housing and Urban Development under HUD.
Selling with proceeds
There are states that allow you to sell your house with the proceeds from the sale. In most cases, these proceeds are included within the closing costs of the transaction. You will probably have to pay property taxes and any mortgage insurance on the house, but you won’t have to repay a reverse mortgage balance until you sell the house or the proceeds from the sale of the house settle.