Reverse mortgages are often used by senior homeowners who are 62 and older to access their home’s equity without monthly payments, as long as the home is their primary residence and they stay current on property taxes and insurance. If you have a reverse mortgage or inherited a home with one, you can sell the home, but the reverse mortgage balance must be paid off at closing using the proceeds from the sale. Any leftover equity is yours or the estate’s to keep.
Most reverse mortgages are nonrecourse loans, meaning that borrowers or their heirs won’t owe more than the home is worth at the time of sale, even if the loan balance exceeds the sale price.
This post details the different steps to take if you want to sell your home with a reverse mortgage, as well as your options for the selling process and why working with a cash home buyer like Florida Cash Home Buyers may be the quickest solution.
How Your Home Equity Impacts the Sale of a Reverse-Mortgaged Home
Home Equity Conversion Mortgages (HECMs) are the most common type of reverse mortgage. They are secured by the Department of Housing and Urban Development (HUD) and offer protections that prevent you from owing more than the home’s market value. If you’re selling a home with a HECM, it’s important to understand the following:
- If you sell your home for more than your loan balance, you keep the difference.
- If you sell your home for less than your loan balance, you must sell your home at the appraised value. The proceeds go toward the loan and mortgage insurance covers the remaining balance.
- If your HECM is in default and the loan is “due and payable,” you can sell your home for 95% of its appraised value. The sale proceeds will go toward the loan, and mortgage insurance will cover any remaining balance.
In addition to HECMs, homeowners may have a proprietary reverse mortgage or a single-purpose reverse mortgage. The selling process will be similar for all reverse mortgages, although proprietary and single-purpose reverse mortgages often have specific terms that you’ll need to address before you sell. Remember to always contact your lender before you begin the process of selling your home.
How to Sell a House with a Reverse Mortgage in Florida
If you own a home with a reverse mortgage loan or have inherited a home with a reverse mortgage, the steps to selling your home are similar. The process for selling a home with a reverse mortgage in Florida is outlined below.
1. Request a Payoff Quote from the Lender
Once you’ve decided to sell, your first step should be to talk to your reverse mortgage lender and ask for a payoff quote. This will allow the lender to provide details on your remaining loan balance, accrued interest, and any associated fees.
If you’ve inherited a home with a reverse mortgage, you should contact the lender immediately so you can receive more information about your rights and obligations regarding the house and mortgage. The mortgage company may require proof of your right to the home like an executed will, death certificate, or a letter from the estate’s executor before they give you any information.
Typically, the loan must be satisfied within 30 days of the borrower’s death. However, lenders may extend the timeline up to six months to allow you to sell the home or obtain a new loan. The loan will continue to accrue interest during this time.
2. Obtain a Home Appraisal
Most HECM lenders will work with an appraisal management company to hire an FHA-approved appraiser to examine the home. The appraisal helps the lender understand the value of the home and whether the loan is in default or exceeds the home’s worth.
If you owe more than the home is worth, you’ll typically need to sell the property at the appraised value. Some lenders may also require short sale approval if the loan balance exceeds the appraisal value.
If you inherit a home that’s worth less than the loan amount and the reverse mortgage is due and payable, you can sell the home for 95% of the appraised value. The FHA mortgage insurance will cover the remaining balance, and you or the estate won’t be on the hook for the difference.
3. Select a Sales Option
You have three options when it comes to selling your home: hire a real estate agent experienced in reverse mortgage sales, sell the home yourself, or work with a cash home buyer.
Real Estate Agent
A real estate agent will take care of the marketing and showing of the house, but they also take a 5% to 6% realtor fee with the timeline taking months before the sales process is finalized. For context, the median time to contract for a single-family home in Florida is 43 days and the median time to a closed sale is 86 days. Additionally, if you inherited the home, you may need to work with a real estate attorney to handle probate before you’re able to sell.
If your house is in good condition and a desirable location, a real estate agent might be a good option. However, if the home needs a lot of work or you’re trying to sell quickly, another selling option may be better for your needs.
Cash Home Buyer
If you need to sell the home quickly and want to avoid extra costs, a cash buyer like Florida Cash Home Buyers offers a quick and easy solution. This is especially a good option if your house requires repairs or upgrades.
With Florida Cash Home Buyers you won’t need to worry about paying commissions or closing costs, cleaning the house, or handling paperwork. We’re also experienced in navigating the probate process for those who have inherited a home with a reverse mortgage. We offer a quick way to sell without the headache of realtor fees, open houses, and showings.
For Sale by Owner
If you choose to sell the home yourself, you will need to prepare the home for sale and make any necessary home improvements to ensure it’s in good condition to attract buyers. The marketing, showings, and paperwork will also become your responsibility. While you can avoid paying any extra fees with this route, it’s a complicated and time-consuming process.
4. Sell and Settle the Loan Balance
Once your house is sold, you will need to use the proceeds from the sale to pay off the loan balance and any other fees. Your lender must confirm that the mortgage is paid off and give you a lien release document.
Next, you’ll need to cover closing costs, including agent commissions, title fees, and outstanding property taxes, although you will not have to pay these fees if you use a cash home buyer.
Finally, you will transfer ownership to the buyer by completing all legal documents. Keep in mind that if you’re selling a home that you inherited, it’s recommended to consult a real estate attorney to handle probate or title issues before closing.
Examples of Reverse Mortgage Payouts
The following section details some examples of how the sale of a home with a reverse mortgage could play out under different scenarios. Remember that these are simplified examples, so it’s always best to talk to a professional to understand your options based on your individual situation.
Example 1: Significant Remaining Equity with a Realtor
In this scenario, the homeowner sells their property for $400,000. After paying off the reverse mortgage debt of $150,000 and covering $20,000 in realtor fees, they are left with $230,000 in equity. Other costs may reduce the final amount.
- Home Value at Sale: $400,000
- Reverse Mortgage Debt: $150,000
- Realtor Fees: $20,000
- Net Proceeds: $400,000 – $150,000 – $20,000 = $230,000
Example 2: Minimal Remaining Equity with Cash Home Buyer
In this scenario, the homeowner sells their home for $300,000. After paying off the reverse mortgage debt of $280,000, they are left with only $20,000 in proceeds. However, since the homeowner sold through a cash home buyer, they saved money by avoiding realtor fees.
- Home Value at Sale: $300,000
- Reverse Mortgage Debt: $280,000
- Net Proceeds: $300,000 – $280,000 = $20,000
Example 3: Sale on Defaulted Loan
Since the HECM loan has defaulted, the homeowner is allowed to sell it for 95% of the appraised value, and mortgage insurance will cover the outstanding balance to the lender ($13,000). However, if the homeowner opts to sell the traditional route, they may still be responsible for the realtor’s fee of $12,000. In this case, it may be worth exploring a different selling option to avoid costly realtor fees, such as a cash home buyer.
- Home Value at Sale: $250,000
- Reverse Mortgage Debt: $275,000
- Final Sale Price: $237,000
- Realtor Fees: $12,000
- Net Proceeds: -$12,000 (Mortgage insurance covers the loan shortfall, but the seller still owes $12,000 in realtor fees.)
In all three examples above, the homeowner had to repay the reverse mortgage debt before keeping any remaining equity from the sale. In cases where Home Equity Conversion Mortgages (HECMs) are involved, Federal Housing Administration (FHA) insurance protects against owing more than the home’s value in cases of a shortfall.
Before you sell your home with a reverse mortgage, it’s important to understand the specifics of your reverse mortgage, including the terms, interest, and insurance coverage. By working with a real estate professional or financial advisor, you can navigate the complicated selling process with ease.
Will You Owe Taxes on the Sale of a Home with a Reverse Mortgage?
If you are the homeowner, you may owe capital gains tax if the home sells for significantly more than its original purchase price. However, if it was your primary residence and you lived there for at least two of the last five years, you can exclude up to $250,000 in gains if single or $500,000 if married filing jointly.
If you inherited the home, you may have to pay taxes on the capital gains. However, the cost basis is adjusted to the fair market value at the time of the owner’s death, so you only have to pay capital gains of the difference between the sale price and the adjusted value. For example, if the fair market value is $400,000 and you sell the home for $405,000, you only owe capital gains on the $5,000 gain.
Alternatives to Selling a Home with a Reverse Mortgage in Florida
In some specific cases, selling a home with a reverse mortgage may not be the best option. It’s important to review your situation and alternatives with a professional before making a decision.
- Stay in your home with support services. If you want to stay in your home, but need a little extra help, you could consider hiring professional caregiving services to help with daily tasks and using reverse mortgage funds to cover in-home care, housekeeping, and other essential services.
- Refinance your reverse mortgage. Your reverse mortgage may no longer be the right fit for you. Consider replacing your existing reverse mortgage with one that offers better terms or higher loan amounts. You can also convert your reverse mortgage into a traditional mortgage if you want full equity control.
- Pay off the reverse mortgage on an inherited home. If you inherit a home with a reverse mortgage and plan on keeping it, you can pay off the reverse mortgage with personal finances. If you don’t have the funds to cover the mortgage, you may need to take out a loan.
- Consider a deed-in-lieu of foreclosure on an inherited home. A deed-in-lieu of foreclosure is where the ownership of the home is turned over to the lender so that the borrower may avoid the formal foreclosure process. This is an option for heirs who do not want a home with little to no equity, as this process allows them to avoid dealing with the sales process.
Sell Your Home with a Reverse Mortgage with Confidence
You can sell a home with a reverse mortgage, but you should look at all of your options before you make that decision. If you inherited the home, you should contact the lender right away to better understand the terms of the reverse mortgage as well as the timeline for selling.
For those looking for a fast and painless solution to sell a house with a reverse mortgage, consider selling to a cash buyer. This option eliminates any buyer risk and extra work on your end. Contact Florida Cash Home Buyers today to get a no-obligation offer and take the next step toward your reverse mortgage home sale in Florida.