Selling a Home with a Reverse Mortgage – Considerations for Real Estate Professionals
Reverse mortgages, which are also known as Home Equity Conversion Mortgages, became quite popular over the last few decades. It is a loan program created in 1988 and offered through the FHA, for homeowners who are 62 years of age or older. Eligibility requirements include that they have either paid off their mortgages entirely or almost, and reside in the home. The program is referred to as the Home Equity Conversion Mortgage or HECM. It is very attractive for older homeowners because it allows them to take out a portion of their property’s equity. The homeowner has the choice of withdrawing the funds through a line of credit, in a fixed monthly amount, lump sum, or combination of all three.
Repayment is required when either the last surviving homeowner moves out of the home or passes away. The estate then has a 6-month period in which to repay the balance on the reverse mortgage. Repayment is typically handled through a property sale.
The National Reverse Mortgage Lenders Association or NRMLA reports that around 1 million reverse mortgages have been originated. As millions of Baby Boomers plan for retirement, many who are holding reverse mortgages would like to sell their homes. Depending on the circumstances, selling a home with a reverse mortgage can present some hurdles for even the savviest real estate agents. That is largely due to the requirement that the loan must be paid off completely and within a short amount of time.
In situations where the homeowner is in poor health or has passed away, the realtor may need to work with a number or other parties, including family members, estate attorneys and even the lender in charge of servicing the reverse mortgage.
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Suggestions for real estate professionals handling a sale with a reverse mortgage attached to it:
- Confirm who is the executor of the estate and/or who has ultimate authority over the estate. This is a point that may be tied up in the original owner’s Last Will and Testament.
- Communication and access to all of the key components are key. Privacy laws have become more strict so this is a vital step. That means that the real estate agent will need to be approved in writing, by the party who holds the authority over the property. That individual should in turn grant permission for the realtor to communicate and receive information from the lender and any attorneys who are part of the process.
- Immediately confirm when the reverse mortgage is due and payable. That will mean checking into fees, interest and the prospect of any early payoff fees.
- Ask the party in authority to obtain a written payoff quote from the lender.
- Be aware that the seller can not offer concessions to a prospective buyer. For example, the seller can not offer to pay any portion of the buyers’ closing costs or give credits to compensate for any issues that may be brought to light through an inspection or appraisal.
- Go the extra mile. Don’t be afraid to dig deep, especially when it comes to obtaining comps and recent sales figures that could help in situations where the property in question has been under valued.
The take away from these points should be the importance of becoming familiar with how reverse mortgages work. In fact, you may discover that when you have a grasp on the process, these types of sales may even close more quickly than a home tied to conventional loan!
Please note that some of the program criteria and information discussed in this article may have changed since the date of publishing. Please consult with a reverse mortgage professional for the most up-to-date information.