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Is it Possible to Sell a House With a Reverse Mortgage?

House with a for sale signHomeowners frequently ask if they can sell their home with a reverse mortgage. The answer is yes! The FHA reverse mortgage program does not prohibit the sale of a home with a reverse mortgage . . . even if the loan balance exceeds the appraised value. Buried in all those papers at settlement is a statement that says the reverse mortgage is a "non-recourse" mortgage. That means that even if the mortgage balance exceeds the sales price, no additional money is required to pay off the loan balance in full. For example, let's say the owner/borrower received $200,000 over the borrower's lifetime and the house is now under water (drop in property value), and the house has a buyer at $100,000, the balance of the mortgage will be forgiven. Actually, the reverse mortgage lender will accept 95% of the home's appraised value, or the full loan balance, whichever is less.

Before selling a home with a reverse mortgage, contact the lender to find out the loan payoff. The lender will also explain the selling procedure. If the home value (sales price) is greater than the loan payoff. The difference between the sales price and expenses will be disbursed at settlement. Keep in mind that the loan balance increases each month. Which means less profit when a sale occurs.

The dilemma of selling a home occurs when the sales price is less than the loan balance. Reverse mortgage servicers are required to accept 95% of the appraised value or outstanding balance (plus reasonable and customary closing costs), whichever is less. But before the lender orders an appraisal, the lender must receive a sales contract signed by the seller (or representative of the seller) and the home buyer.

Lenders obtain an appraisal to deter a sales price that is well below the current market value. The lender appraisal discourages a family member or friend to purchase the home below the market value. The FHA will permit family members to purchase the home at 95% of the appraised value . . . even if the loan balance exceeds the appraised value!

Reverse mortgage short sale

Lenders and real estate agents use the term "short sale" or underwater when the loan balance exceeds the appraised value. The homeowner/borrower with need the lender's permission for a short sale.