Since 1988, senior citizens have originated about one million reverse mortgages. You might be asking yourself, “What is a reverse mortgage?” A reverse mortgage allows the homeowner to take advantage of the equity they’ve built up while staying in their home for as long as possible.
While the reverse mortgage rules seem simple enough while the homeowner is in the home, when it comes time to sell, dealing with a home that has a reverse mortgage can be complicated.
Below we will dive into the process of selling a home with a reverse mortgage and offer our favorite tips for realtors and their clients to make the process as efficient as possible.
Can You Sell a Home With a Reverse Mortgage?
You can absolutely sell a house with a reverse mortgage, and the process of selling will be fairly similar to the home selling process when there is no reverse mortgage in place. With a traditional mortgage, once the house sells, the mortgage needs to be paid off in full. This same rule applies to a reverse mortgage, but the payoff process can be more complicated.
When a homeowner with a reverse mortgage has engaged you to sell their home, the first things you will need to determine are how much the homeowner owes on the reverse mortgage, and how much the home is actually worth.
It’s important to note that a reverse mortgage lender will accept 95% of the home’s appraised value, or the full loan balance—whichever is less. The complicated part of this process is there has to be a purchase agreement in place before the mortgage lender will issue an appraisal of the house.
For context, a purchase agreement (also known as a buy-sell agreement) is a contract signed by the homeowner and the buyer that confirms the purchase price, closing date, and other related terms and conditions. So, before you can get your home appraised by the mortgage lender, you need to have the purchase price in place.
While this isn’t typically an issue, it can become one if the home hasn’t gained value, or the homeowner doesn’t have enough equity to pay off the reverse mortgage balance. As a real estate agent, you cannot list a property for less than the amount owed to the lender. The only exception to this is if your client intends to make up the difference at closing.
Tips for Selling a Home with a Reverse Mortgage
Now that you understand the selling process of a home with a reverse mortgage, take a look at our tips for making the process quick and painless!
1. Communicate with Your Clients
Although you’ll want to have strong communication with all of your clients, home sales involving a reverse mortgage will require an extra layer of communication. Not only will you need to be upfront with the homeowners to thoroughly explain the home selling process, but you will also want to be in constant communication with the reverse mortgage lender.
When working with a reverse mortgage lender, you might find yourself spending hours calling and emailing them to get a status of the appraisal, so you can close the deal and appease your client.
2. Build in Extra Flexibility
Because reverse mortgages are taken out by senior citizens, realtors will face a unique set of difficulties when working on these sales. Realtors will frequently need to work with family members of the homeowner, estate attorneys, and the reverse mortgage lender.
Having to contend with so many voices and differing opinions requires a lot of flexibility on your part. As a realtor, you will need to determine who is actually in power of the property, and focus on their needs and wants.
Since homes with reverse mortgages are typically owned by senior citizens, the homeowners might not have control of their estate, rather their children or another family member have control. On the other end of the spectrum, if the homeowner of the property is deceased, you will have to work with the estate attorney to sell the property. Either way, just focus on the legal property owner and your job will be a lot simpler.
3. Be Sensitive to Timelines
Realtors need to be mindful of the sensitive timelines that are associated with reverse mortgage loans. The loans will become due and payable, and unless the home is sold, the homeowner (or applicable party) won’t have the money to pay it off.
Not only could the stress of pending payback dates be taken out on you, but if the home is not paid in time, homeowners are more likely to break their contracts and find another realtor. Although the time the house is on the market is not always dependent on the realtor, homeowners will see it that way and take their frustrations out on you.
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Interested in learning more about selling a home with a reverse mortgage? Take our real estate continuing education course for additional tips on reverse mortgages and a wide variety of other real estate topics.