A reverse home loan, also known as a reverse mortgage, serves as a financial tool that allows homeowners, typically seniors, to convert a portion of their home equity into cash. However, selling your home while having a reverse mortgage can complicate matters. Understanding what happens in this scenario is crucial for homeowners considering their options.
When you decide to sell your home with a reverse mortgage, the loan must be repaid. This is because a reverse mortgage is secured against the equity in your home, and selling the property triggers the requirement for repayment of the loan. Here’s a closer look at the process:
Upon selling your home, the proceeds from the sale will first go towards paying off the reverse mortgage. The amount owed typically includes the original loan amount plus any accrued interest and fees. It’s important to assess whether the sale price will cover the entire balance of the reverse mortgage.
If the sale price exceeds the amount owed on the reverse mortgage, the remaining equity will be yours. For instance, if you owe $150,000 on your loan but sell your home for $200,000, you will net $50,000 after settling the mortgage. This equity can be a significant financial benefit.
Conversely, if your home sells for less than the mortgage balance—an event commonly known as being 'underwater'—there are still protections in place. Reverse mortgages are non-recourse loans, meaning you will not owe more than the value of your home at the time of the sale. Lenders cannot pursue other assets to recover the shortfall.
It’s imperative to notify your reverse mortgage lender when you plan to sell your home. They will provide information on the outstanding balance and the next steps involved in the repayment process. Additionally, this advance notice ensures that you fulfill your obligations and avoids any potential complications.
Engaging with experienced real estate agents or financial advisors who understand reverse mortgages can significantly ease the selling process. They can help you navigate the intricacies of selling a home with a reverse mortgage, ensuring you maximize your equity while complying with all legal requirements.
In conclusion, selling a home with a reverse mortgage requires careful planning and understanding of the implications for the loan and assets involved. By knowing how the loan payoff works, assessing your equity situation, notifying your lender, and seeking professional help, you can navigate this transition smoothly.
