Selling a home with a reverse mortgage is straightforward: the sale proceeds pay off the reverse mortgage balance, and any remaining equity goes to the homeowner or their estate. If the sale price does not cover the full loan balance, the lender accepts the proceeds as payment in full thanks to FHA insurance. This is known as a non-recourse feature.
How the Payoff Works
When you sell a home with a reverse mortgage, the title company or closing agent requests a payoff statement from the reverse mortgage lender. The payoff amount includes the principal balance, accrued interest, and any mortgage insurance premiums or servicing fees. The closing agent pays the lender from the sale proceeds first, and any remaining funds go to the seller or their estate.
If the home sells for less than the reverse mortgage balance, the Federal Housing Administration (FHA) insurance covers the shortfall. The lender cannot pursue the borrower's other assets for the difference. This non-recourse protection is a key feature of HECM (Home Equity Conversion Mortgage) reverse mortgages. However, if the home is not sold for enough to pay off the loan, the borrower or heirs must sell the property or provide a deed in lieu of foreclosure to the lender.
What Heirs Should Know
When the reverse mortgage borrower passes away, the loan becomes due and payable. Heirs have options: sell the home and pay off the loan, purchase the home for 95% of its appraised value, or deed the property to the lender. Heirs typically have 6 to 12 months to settle the reverse mortgage before the lender initiates foreclosure.
As a dual-licensed loan officer and realtor, I can help heirs navigate the reverse mortgage payoff process. I can coordinate with the reverse mortgage lender, order an appraisal, and price the home to sell within the required timeline. Heirs often have questions about whether they can keep the home, and I can explain the purchase option clearly.
