Wondering if you can sell a home with a reverse mortgage in Phoenix, Arizona? This guide will walk you through the process and key considerations. We'll dive into what a reverse mortgage is, how selling affects your outstanding loan balance, and some limitations, like why renting out a home with a reverse mortgage isn't typically allowed. Whether you’re looking to downsize or make a change, this overview will help make it all clearer so you can confidently move forward with your plans.
Understanding Reverse Mortgages and HECM Loans
A reverse mortgage allows homeowners, typically those 62 and older, to access their home equity without needing to make monthly payments. Instead of making payments, the loan balance increases over time as interest and fees are added.
The most common type of reverse mortgage is the Home Equity Conversion Mortgage (HECM), which is insured by the Federal Housing Administration (FHA). There are also home equity conversion mortgages offered by private lenders, often called proprietary reverse mortgages, which may be available for homes with higher values but come with similar terms.
Unlike a typical home equity loan, reverse mortgage loans are designed to provide cash flow to homeowners while allowing them to stay in their homes. However, the loan becomes due when the homeowner sells, moves out, or passes away, at which point the outstanding loan balance must be paid in full.
Why You Can’t Rent Out a Reverse Mortgage Property
One important restriction with reverse mortgages is that the home must remain the borrower’s primary residence. Renting out the property violates the reverse mortgage loan agreement and could lead to foreclosure. For homeowners in Phoenix, this means using the property for rental income isn’t an option. Most reverse mortgages require full-time occupancy by the homeowner, so if you’re considering moving out, selling may be the only viable route. Selling instead of renting allows you to close the reverse mortgage and potentially use any remaining funds to pursue other financial goals.
Steps to Selling a Reverse Mortgage Property
1. Notify Your Mortgage Lender
If you plan to sell your property, your first step is to inform your mortgage lender. They will provide details on your current reverse mortgage loan balance and requirements for repaying it. Clear communication with your lender can ensure the sale process goes smoothly.
2. Appraise the Property to Determine Sales Price
Establishing the home’s sale price is important, as it determines whether the sale will cover the reverse mortgage loan balance. With HECM and home equity conversion mortgages, which are non-recourse, you’ll owe no more than the home’s value, even if the sale falls short of covering the loan balance.
3. Consider Reverse Mortgage Costs and Closing Fees
Apart from repaying the reverse mortgage, sellers must factor in reverse mortgage costs and closing costs. The total repayment will depend on the remaining loan balance and additional fees. If you sell for more than you owe, the remaining funds are yours. However, if the sales price is lower than the outstanding loan balance, HECM terms allow you to avoid paying beyond the appraised value.
4. Hire a Home-Buying Company Familiar with Reverse Mortgages
Hiring a home-buying company experienced in reverse mortgages can simplify your selling process. They’ll assist in setting a competitive listing price, negotiating offers, and navigating any reverse mortgage-specific requirements during closing. Choosing a company knowledgeable about reverse mortgages can also protect you from reverse mortgage scams that target vulnerable sellers.
5. Settle Property Taxes and Other Fees
Homeowners must settle any property taxes and other outstanding dues as part of the sale. While reverse mortgages typically require borrowers to pay property taxes regularly, these amounts can add up if unpaid. Clearing all dues ensures the property can be sold without unexpected financial barriers.
What If Your Property Value Has Dropped?
If your home’s market value has dropped and the property now has negative equity, selling is still possible. The FHA’s non-recourse feature of HECM and home equity conversion mortgages means you or your heirs will owe no more than 95% of the home’s appraised value. This non-recourse protection can be a relief for those looking to sell without facing a financial deficit, even if the outstanding loan balance exceeds the property’s value.
Finalizing the Sale and Paying Off the Reverse Mortgage Loan
Once you find a buyer and agree on a sales price, the sale proceeds will go toward the reverse mortgage loan balance. Any remaining funds after the reverse mortgage loan is repaid are yours to keep. However, it’s crucial to work closely with your lender to ensure all requirements are met. The exact requirements depend on your reverse mortgage terms, so collaboration with your mortgage lender and other professionals can help streamline the process and prevent delays.
Protect Yourself Against Reverse Mortgage Scams
Since reverse mortgage costs can be a huge amount, reverse mortgage scams are a concern, especially when selling. Working with established professionals, such as licensed mortgage companies or home-buying companies, and understanding the correct procedures for selling can help you avoid these pitfalls.
Selling Your Reverse Mortgage Property to AZ Home Buyer
At AZ Home Buyer, we understand that selling a reverse mortgage property can be stressful, particularly with additional costs like mortgage insurance premiums, servicing fees, and property taxes. Our goal is to provide an easy solution for selling your reverse mortgage home in Phoenix, AZ, and to help you achieve a stress-free transaction.
Here’s how AZ Home Buyer can assist you:
Sell As-Is: We purchase properties as they are, so there’s no need to invest in repairs or renovations.
Flexible Closing Dates: We work with you to set a closing date that suits your needs and provides you with adequate time to transition.
No Hidden Fees or Commissions: Selling directly to us saves you the typical agent commissions and fees, which is beneficial when managing reverse mortgage costs.
Expert Guidance: Our team is well-versed in the specifics of reverse mortgage loans, including HECM reverse mortgages and home equity conversion mortgages. We’ll handle the details so you can focus on your next step.
Take the Next Step with AZ Home Buyer!
If you're ready to sell your reverse mortgage property in Phoenix, Arizona, AZ Home Buyer is here to simplify the process for you. Our team has the expertise to ensure a seamless experience, helping you navigate reverse mortgage loan balance repayment, closing costs, and any additional steps with ease.
Explore Our Services or Contact Us today, and let AZ Home Buyer guide you through a smooth and successful reverse mortgage home sale!
