Can You Sell a House With a Reverse Mortgage?

Selling a house with a reverse mortgage can be complicated, but there are guidelines and standards that can help you understand what to expect. First things first: Yes, you can sell a house with a reverse mortgage. If you own a home with a reverse mortgage, the title still belongs to you, and you can sell without penalties at any time.

A reverse mortgage is a home loan that allows senior homeowners to convert part of their home equity into cash while still retaining ownership of the home. You don’t make monthly payments; instead, interest and fees are added to your balance.

The loan must be repaid when the borrower sells the house, moves out, or passes away. What’s more, reverse mortgages have special protections in place, and even if you can’t cover your loan balance with proceeds from your home, you might not be responsible for paying the difference.

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How a reverse mortgage works

A reverse mortgage is a loan that allows homeowners, typically aged 62 and older, to borrow against their home equity. Instead of making mortgage payments to a lender, a reverse mortgage gets the lender to pay you (hence the “reverse” part).

All interest and fees are added to the loan balance every month. Over time, the amount owed increases, while simultaneously the homeowner’s equity goes down. The loan becomes due when the borrower leaves the home, sells it, or passes away. So, typically, homeowners or their heirs repay the loan by selling the property.

It’s important to note that the homeowner still owns the title throughout the loan’s life, meaning the borrower must continue paying property taxes and home insurance.

Reverse mortgage payout types

Homeowners can choose from several payout options for their reverse mortgage:

• Lump sum: Receive the entire loan amount upfront
• Monthly payments: Get regular payments, either for a fixed period or as long as the borrower lives in their home
• Line of credit: Withdraw funds as needed over time. 

These payment options offer flexibility for covering either ongoing or unexpected expenses throughout retirement.

Pros and cons of selling with a reverse mortgage

Selling a home with a reverse mortgage presents some unique benefits and drawbacks compared to a typical sale. They include:

✅ Pros

• No penalties for selling: Borrowers can sell their home at any time, repay the loan balance, and keep any leftover equity.
• Reverse mortgages are typically non-recourse loans: The homeowner and their heirs won’t owe more than the home is worth, even if the loan exceeds the property’s value.
• Potential for extra profit: If the home has appreciated in value, sellers may earn more than what they owe after the sale.

❌ Cons

• Growing loan balance: The amount owed increases over time from accruing interest and fees, which can potentially leave little to no equity when selling.
• Possible forced sale timing: The lender may require repayment (which is usually financed by a sale) when a maturity event occurs, such as a homeowner moving out or passing away. This can force a sale at an unfavorable time.
• Possible short sale impact: If the home’s value falls below the mortgage balance, a short sale may take place. While personal liability for owners or their heirs is capped, this scenario can impact the owner’s credit score and complicate the sale process.

Considering these reverse mortgage pros and cons helps homeowners plan both for their financial well-being and a variety of possible outcomes when selling their home.

Key terms and triggers to know when selling a home with a reverse mortgage

Maturity event

A reverse mortgage loan becomes due for repayment upon the occurrence of a maturity event. However, lenders will usually provide a six-month grace period for the balance to be paid off. Common maturity events include:

• The borrower permanently moving out of the home
• Non-payment of property taxes, insurance, or HOA fees
• Letting the property fall into severe disrepair
• Death of the last borrower

Non-recourse loan

A reverse mortgage is a "non-recourse loan." This means that lenders can’t sue you or seize any personal assets. They can only take proceeds from the sale of your house, and you’re not responsible for paying the difference.

That said, if you’re selling the home for less than what’s owed (called a short sale), your lender could technically report your loan to credit bureaus as a default, which could hurt your credit score.

Loan payoff vs. equity

The loan payoff is the total amount owed (principal plus accrued interest and fees), while the equity is your stake in the home’s current value minus what’s owed. When the home sells, proceeds will be used first to pay off the loan, and any remaining equity belongs to the homeowner.

Before selling your home with a reverse mortgage, you should run some numbers to see if it makes economic sense. Find out:

• How much your house is currently worth. An appraisal will help you determine this.
• How much you owe on your loan. Ask your lender for a payoff quote, which will break down all the costs you owe: loan balance, interest, mortgage insurance premiums, and fees.

You should also factor in the costs of selling your house, such as repairs, staging, real estate commissions, and closing costs.

Foreclosure and eviction risk

You don’t need to make monthly mortgage payments to the lender, but you are still responsible for paying property taxes, insurance, and other associated fees. Missing these can trigger a default and allow the lender to foreclose and evict the homeowner.

4 steps to selling your house with a reverse mortgage

1. Contact your lender

Reach out to your lender as soon as you decide you want to sell. Make sure to request a payoff statement, which will show your total outstanding balance, including principal, interest, and any additional fees.

👉 Does contacting a lender trigger a maturity event? No, telling your lender you want to sell your house doesn’t automatically make your reverse mortgage due. The maturity event will be the day you either list or sell your home, depending on the conditions of your loan.

2. Find a real estate agent

You might be tempted to sell your home yourself (known as "for sale by owner," or FSBO) to minimize transaction costs. But FSBO homes tend to sell for less than those sold with an agent, so the cost of a seller's agent is often worth it to get the best price and help navigate all the steps.

Selling a home with a reverse mortgage involves additional steps and disclosures compared to a traditional sale. So, when choosing a real estate agent, make sure they have experience with reverse mortgages.

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3. Sell the home

Work with your agent to prepare, list, and show the home. Selling a home with a reverse mortgage is no different from selling a traditional home, but be sure to disclose the reverse mortgage lien to the buyers.

Also, be mindful of the home’s listing price. You’ll want to sell the house for as close to the appraised value as possible (if not more), especially if you expect your home’s worth to be less than the loan amount.

4. Use profits from the sale to pay back your loan 

Once you sell your home, you’ll use the proceeds to pay off your reverse mortgage and any associated expenses, closing costs, and real estate commissions.[1]

Your lender will require you to pay off your loan as soon as you sell the house. Many lenders might allow for a six-month period from the maturity event date to pay off your loan, along with up to two three-month extensions. To receive this extension, you may need to show you’re actively marketing the property or finalizing the sale.

What if you owe more than the home is worth?

Home Equity Conversion Mortgages (HECMs), the most common type of reverse mortgage, offer federal protections for homeowners and their heirs. Since reverse mortgages are non-recourse loans, the lender can only be repaid through the home’s sale, not any of your personal assets. So, you likely won’t owe any more than the home’s value when paying off a reverse mortgage.

For HECMs, the 95% rule allows heirs to pay either the full loan balance or 95% of the property’s appraised value, whichever is less.[1]

Let’s imagine the amount owed at the time of the owner’s death was $300,000. However, due to market fluctuations, the home's market value is only $270,000. In this case, an heir would owe $256,500 (95% of the value), and the rest will be covered by FHA insurance.

What happens if you inherit a home with a reverse mortgage? 

If you inherit a home with a reverse mortgage, you’re responsible for both the property and managing the loan. There are three main scenarios:

1. Repay the loan balance and keep the home. It’s possible to keep the house you inherited, even if it has a reverse mortgage. In this case, you would have to repay the loan in full, either with cash or by taking out a traditional mortgage on the property. 
2. Sell the home. This is another common option to repay a reverse mortgage. The proceeds from the sale will first be used to repay the loan, and the heirs can keep the difference.
3. Provide a deed in lieu of foreclosure. If you don’t want to deal with selling a home, you can simply surrender a property to the lender without additional cost. However, in many cases, this results in a loss of potential profit, so make this a last resort.

Typically, after you receive a due and payable notice from the lender, you have 30 days to decide which option to pursue.[2] However, it’s often possible to negotiate with a lender and extend this timeline up to six months.

Buying a house with a reverse mortgage

If you buy a home from someone with a reverse mortgage, the process is essentially the same as buying any other home. The reverse mortgage is the seller’s responsibility, and the loan will be paid off on their end at closing, clearing the title for you, the buyer.

The reverse mortgage will not be transferred to the buyer, and you will not inherit any reverse-mortgage obligations. As soon as you assume ownership, you’ll have typical owner responsibilities, such as paying property taxes, homeowners insurance, and your own mortgage, if you have one.

Tax considerations when selling a home with a reverse mortgage

While the money received from a reverse mortgage is not considered taxable income, the profits from the sale may be, depending on the profit you make from the sale.

You'll likely need to pay capital gains taxes on a reverse mortgage sale only if you make a profit of at least $250,000 if you're single, or $500,000 if you're married and filing jointly. However, this capital gain exclusion is applicable only to those who used the property as their primary residence for at least two out of the five years preceding the sale.[3]

For heirs, the most likely scenario is that the taxable income would be any extra money you make on the sale that exceeds the fair market value of the property.[4]

Tax implications can vary depending on your personal situation and your location, so it’s recommended to consult a tax advisor to avoid any issues.

Summary: Selling a house with a reverse mortgage

You can sell your home with a reverse mortgage at any time, although you'll need to pay the outstanding balance on your loan and any additional fees. Also, if you owe more than your home is worth, you or your heirs will only need to pay 95% of its current appraised value.

If you need any more information on reverse mortgages and the options you or your heirs have when selling a home with a reverse mortgage, the Consumer Financial Protection Bureau provides a detailed overview.

FAQs about selling a house with a reverse mortgage