January 2, 2019 by HECM Pro
Can you sell a house with a reverse mortgage? In other words, if you have a reverse mortgage, are you stuck in your home even if you want to sell and move? Definitely not. You’re free to sell your home or pay off the reverse mortgage balance at any time with no prepayment penalties. Contrary to what many people think, you are not locked into your home when you have a reverse mortgage.
I’ll dig into this a little more in a minute, but let me first cover a few basics. If you’re already familiar with the basics, feel free to skip farther down into the article.
Reverse mortgage basics
The most common reverse mortgage product by far in America today is the FHA-insured and regulated home equity conversion mortgage, or HECM (often pronounced heck-um by industry insiders). If somebody you know recently got a reverse mortgage, it’s likely they got a HECM. This is the particular reverse mortgage product I’m referring to in this article.
The HECM reverse mortgage is a type of home loan that enables homeowners 62 or older to convert a portion of the value of their homes into cash without giving up ownership of the home or taking on a mortgage payment. As long as at least one borrower is living in the home and paying the required property charges, no mortgage payments are required and the loan does not have to be paid back.
The reverse mortgage only has to be repaid when the last borrower permanently leaves the home, whether through selling, passing away, or moving into a nursing home.
If the home isn’t worth enough to settle the entire loan balance, FHA picks up the shortage. Any equity that remains in the home after paying off the reverse mortgage will go to borrower’s heirs.
Proceeds can be used for just about any purpose, but many borrowers use the reverse mortgage to eliminate existing mortgage payments (which is particularly relevant for what we’re discussing here).
Feel free to check out this article for more detailed information about how a reverse mortgage works.
Can you sell a house with a reverse mortgage?
So, can you sell a house with a reverse mortgage? Absolutely! Again, it’s just a home loan. You’re not locked into your home and there are no prepayment penalties. The reverse mortgage balance can be paid off at any time in full with no limitations.
If you wish to sell your home and pay off the reverse mortgage, you would handle the transaction just like any other home sale. You hire a real estate agent, who puts the house on the market. Once the house sells, the mortgage balance is paid off through the proceeds of the sale. Any remaining equity after closing costs goes into your pocket.