Aging in place has become more common today. Many seniors would rather remain in their home than move into a nursing home. In order to do so, though, many seniors need more money. They own their home outright but don’t have a lot of cash in hand. Because they have so much invested in their home, they can take out a reverse mortgage. This allows access to the equity. The good news is, you can sell your home even with this mortgage in place. We discuss how below.
What is a Reverse Mortgage?
First, let’s look at how a reverse mortgage works. As the name suggests, it’s a mortgage that works opposite a standard mortgage. You borrow money but in a different way. You already own your home. However, you want your cake and eat it too, so to speak. You want to live in the home, but have the cash that’s invested in it. Enter the reverse loan. You take money out of the equity. You don’t make monthly payments. The money isn’t due until you move or pass away. You do have the option to make interest-only payments if you desire, though.
Usually, you can take out up to 66% of your equity. The lender bases the amount on the latest appraised value. You can receive the money in any of the following ways:
- One-time disbursement – You receive all of the money at once.
- Tenure – You receive a fixed amount of money each month for as long as you live.
- Term – You receive a fixed amount of money each month for a specific period of time.
- Line of credit – You withdraw the funds as you see fit.
- Modified tenure – You withdraw the funds like a line of credit but also receive a fixed monthly payment.
- Modified term – You withdraw the funds like a line of credit but receive a fixed monthly payment for a certain period as well.
When Can You Sell Your Home?
With a reverse mortgage, you can sell your home at any time. Just like any other lien on the property, the closing agent pays the mortgage off first. This means any proceeds from the sale of the home go towards the mortgage. Any money that is left over is for you and any other closing fees you owe, such as your attorney’s fees.
Here are a few important things to know about selling your home with a reverse loan on it:
- You can sell it at any time.
- There are no penalties.
- You’ll need a loan payoff, just as you would with a standard mortgage.
Things to Consider Before Selling Your Home
You should consider a few important things before you sell your home. First, is the value of the home. Sure, you knew the value when you took out the reverse mortgage. But what is the fair market value today? An experienced real estate agent can help you determine this amount. Of course, if you want an official value, you must hire an appraiser. This step is crucial. There’s no way to predict if the value increased or decreased. What if it dropped? You might not have nearly as much profit in the home as you thought. You must pay off the home equity conversion mortgage first. Determining the value will help you decide if now is the right time to sell.
You’ll also need to consider the accrued interest. Don’t assume because you took out $100,000 that you only owe that amount. The interest accrues based on the note at the time of closing. You may have a fixed or adjustable rate loan. Ask your lender the amount of accrued interest. This could help you decide whether you want to move or not. If you didn’t make interest payments throughout the life of the loan, you’ll owe a much higher amount than you borrowed.
Decide How to Sell Your Home
Once you decide to move, you must then decide how to sell it. The easiest route is by working with a real estate agent. But, they can charge as much as 6% of the sales price of the home. On a $200,000 home, this means $12,000. You should decide if this makes sense. Determine how much you owe to pay off the reverse loan first. How much money do you have left? If there’s not a significant amount left, you may want to consider selling it on your own.
Consult With an Attorney
As with any home sale, you should hire an attorney. He can help you decide if this is the right choice right now. For example, if he sees you are upside down on the home, he may caution you against selling. You aren’t going to be in a better financial position. In fact, it could be worse. Trying to handle this on your own may not be the best choice.
The attorney will also make sure your closing goes off without a hitch. As a seller, you have rights. Your attorney will make sure they are covered. He will also make sure you only pay the closing fees you are supposed to pay. Sellers have their costs and buyers have some too. Sometimes seller cover buyer’s costs, but in this case, it doesn’t make much sense. You need the money to help you move onto the next stage in your life.
Selling your home with a reverse mortgage is possible. It’s also not much more difficult than a regular sale. The largest considerations are the home’s value and the accrued interest. Consider why you want to move. Do you need money? Do you need more help? Knowing your ultimate goal can help you determine if leaving is the right choice. Understand the bottom line and how you will be affected. If it doesn’t make sense to sell now, talk to your family about other options. This way everyone is on the same page and you can enter the next phase of your life peacefully.Click to See the Latest Mortgage Rates»