Life changes, sometimes gradually, sometimes all at once. A senior homeowner may choose to move into assisted living. A family may face the loss of a loved one. When a home has a reverse mortgage, many families aren’t sure what happens next. Questions about ownership, timelines, and equity can add confusion to an already emotional time.
The good news is that selling a home with a reverse mortgage is not only possible, it’s a common and well-defined process. Whether you’re the homeowner or a family member handling an estate, understanding your options can reduce stress and help you make confident decisions.
This guide will walk you through:
- Whether a reverse mortgage home can be sold
- How the process works (step-by-step)
- What to do if the homeowner has passed away
- How much time heirs have to act
- Legal and financial considerations to keep in mind
Can You Sell a House with a Reverse Mortgage?
Having a reverse mortgage doesn’t stop you from selling. There’s a common misconception that once a reverse mortgage is in place, the property is essentially locked away until the homeowner dies. That’s not true. Here’s what’s important to understand:
What Is a Reverse Mortgage?
A reverse mortgage, often a Home Equity Conversion Mortgage (HECM), is a loan available to homeowners aged 62 or older. It allows them to convert part of their home equity into cash, without having to sell the home or make monthly mortgage payments.
Instead, the loan is repaid when:
- The homeowner sells the home
- The homeowner passes away
- The home is no longer their primary residence (e.g., they move to assisted living)
How Selling Your House Works
If the homeowner chooses to sell or their heirs do, the process includes:
- Requesting a payoff statement from the reverse mortgage servicer
- Selling the home, just like a traditional real estate transaction
- Paying off the loan at closing
- Receiving any remaining equity
If the sale price is greater than the loan balance, the homeowner or their heirs keep the difference. If the home sells for less than what’s owed, and it’s an FHA-insured reverse mortgage, the lender absorbs the loss through the mortgage insurance. Heirs are never personally liable for the remaining balance.
How to Sell a Property with a Reverse Mortgage
Selling a home with a reverse mortgage is similar to any property sale, with some extra documentation and lender communication. Below is a clear, step-by-step breakdown of what’s involved.
Step 1: Contact the Loan Servicer for a Payoff Statement
Begin by requesting a reverse mortgage payoff letter. This document shows the total amount needed to pay off the loan, including:
- The original loan balance
- Accrued interest
- Mortgage insurance premiums
- Servicing fees (if any)
Make sure to ask for this in writing, as it provides a clear target for your sale price and helps in planning next steps.
Step 2: Choose How You’ll Sell the Home
You have a few options depending on your timeline, the home’s condition, and market conditions:
- Traditional Sale: List the property with a real estate agent and prepare the home for showings. This may take longer and involve repairs or staging.
- As-Is Sale: Sell the home without repairs or updates, which may appeal to investors or buyers looking for fixer-uppers.
- Estate Sale: If the homeowner has passed, the executor or heirs can list and sell the property as part of settling the estate.
Whichever method you choose, make sure the sale price will be enough to pay off the reverse mortgage (unless you’re relying on non-recourse protections, discussed below).
Step 3: Disclose the Reverse Mortgage to Buyers
Buyers will need to be informed that the property has a reverse mortgage lien. This doesn’t usually deter serious buyers but helps attorneys, agents, and title companies prepare appropriate paperwork.
Step 4: Proceed to Closing and Repay the Loan
At closing, the reverse mortgage will be paid from the proceeds of the sale. Any remaining equity will go to:
- The homeowner (if alive and selling), or
- The estate or designated heirs (if the homeowner has passed)
Once the loan is repaid, the lender removes the lien, and the new buyer takes ownership.
What Happens When the Homeowner Passes Away?
If the homeowner has died, their heirs or estate executor must notify the lender. This begins a timeline for resolving the mortgage.
Immediate Actions for Heirs:
- Notify the Lender in Writing: Let the reverse mortgage servicer know that the borrower has passed.
- Request the Mortgage Balance: Get a formal payoff statement showing the exact amount due.
- Review the Home’s Value: Obtain a real estate appraisal or comparative market analysis to evaluate your selling options.
Options for Heirs:
- Sell the Home: Use sale proceeds to repay the reverse mortgage. Any equity left goes to the estate.
- Refinance the Loan: Heirs may keep the home by refinancing into a traditional mortgage.
- Deed-in-Lieu of Foreclosure: If the home is worth less than the mortgage and heirs don’t wish to sell, they can return the deed to the lender without going through foreclosure.
Note: Heirs are not responsible for the loan personally. The reverse mortgage is non-recourse, meaning the lender can only claim the home, not other assets.
How Long Do You Have to Sell a House with a Reverse Mortgage?
After the homeowner passes, the clock starts ticking. The U.S. Department of Housing and Urban Development (HUD) has set guidelines for when the loan must be settled.
Standard Timeline:
- 6 Months: Heirs are typically given six months to repay the loan, either through sale or refinance.
- Extensions Available: Two 3-month extensions may be granted (up to 12 months total) if the heirs show they’re actively working to sell or refinance the home.
- Documentation Required: Extensions often require proof that the home is listed or that financing is in process.
Why Timelines Matter!
Consider a family whose mother passed away in early spring. The children promptly contacted the reverse mortgage servicer, got an appraisal, and listed the home by summer. They sold it within four months, repaid the loan, and used the equity to settle the estate, all without legal complications or financial stress. Delays in selling can lead to:
- Accruing interest and fees
- Foreclosure proceedings
- Loss of remaining equity
Key Considerations When Selling a Reverse Mortgage Home
Selling a reverse mortgage home involves specific rules and timelines. Knowing what to expect can help you make smart decisions and avoid unnecessary stress.
- Get Everything in Writing: Always request formal documentation from the lender.
- Work with Knowledgeable Professionals: Real estate agents, estate attorneys, and probate specialists can help avoid common pitfalls.
- Understand the Property Title: The title must be clear of disputes or unresolved inheritance claims before selling.
- Be Aware of Probate Laws: In some states, homes must pass through probate before they can be sold by heirs. This can affect timelines.
Final Thoughts: Selling a Reverse Mortgage Home Can Be Simple
Selling a home with a reverse mortgage can feel confusing, especially if you’re going through a tough time. Maybe a loved one has passed away, or needs to move into assisted living and now you’re not sure what happens to the house. Many people worry they’ll lose everything.
But here’s the good news: you can sell the home. The key is to act quickly, stay in touch with the loan company, and understand what steps to take. Waiting too long could lead to extra stress or even foreclosure.
Even with a reverse mortgage, there’s often equity left over. That money can still go to you or your family. With the right help, you can get through this with less stress and protect what your loved one worked hard for.
Frequently Asked Questions (FAQ)
1. Can you sell a house that has a reverse mortgage before the homeowner passes away?
Yes. Homeowners can sell the home at any time, even while alive and living in the property. The reverse mortgage will be paid off from the sale proceeds, and any leftover equity belongs to the homeowner. There are no penalties for early repayment.
2. What happens if the sale price is less than the reverse mortgage balance?
If the sale price is less than what’s owed, you are not personally responsible for the shortfall. FHA-insured reverse mortgages are non-recourse loans, meaning the lender can only collect up to the current market value of the home. The mortgage insurance covers the difference.
3. How long do heirs have to sell a home with a reverse mortgage after death?
Typically, heirs are given 6 months to sell or repay the loan. If more time is needed, lenders may grant up to two 3-month extensions, for a total of 12 months, provided the heirs are actively trying to resolve the loan (e.g., listing the home or applying for financing).
4. Can heirs keep the house instead of selling it?
Yes. Heirs can choose to keep the home by refinancing the reverse mortgage into a traditional loan or paying it off with other assets. The lender will provide a payoff amount that must be satisfied to remove the lien.
5. What if no one wants to keep or sell the home?
If the heirs don’t want the property and don’t wish to sell it, they can voluntarily transfer ownership back to the lender through a process called deed-in-lieu of foreclosure. This avoids a formal foreclosure and satisfies the debt without affecting the heirs’ credit.
6. Does the reverse mortgage need to go through probate before the home is sold?
That depends on your state’s probate laws and how the home was titled. If the home was held in the deceased person’s name only and no trust was used, it may need to go through probate.
7. How do I find out the reverse mortgage balance or loan servicer?
Check the homeowner’s paperwork or monthly statements to identify the reverse mortgage lender or loan servicer. You can then contact them directly to request a payoff statement.
8. Can I sell a reverse mortgage home without making any repairs?
Yes. Reverse mortgage homes can be sold as-is, especially if you choose to work with buyers or investors who purchase homes in their current condition. Just make sure the sale price is enough to cover the reverse mortgage balance.