Yes, you can absolutely sell a house with a reverse mortgage, but the loan balance (principal, interest, and fees) must be paid off from the sale proceeds, with any leftover equity going to you or your estate; it's a non-recourse loan, so you won't owe more than the home's value, and you should inform your lender and get a payoff quote before listing.
Important steps to follow when selling your reverse mortgage home:
The most common way a reverse mortgage is repaid is by selling the home. After the home is sold, the proceeds are used to pay the loan balance. Any remaining funds are distributed to the borrower or their estate.
Most reverse mortgages are HECMs, insured by the government. Borrowers must stay current with property taxes, insurance, and maintenance. Defaulting can lead to having to repay the loan or lose the house.
Dave Ramsey strongly opposes reverse mortgages, calling them "scams" and "rip-offs" due to high fees, high interest rates that build up, and the risk of seniors owing more than their home's value, leading to potential foreclosure if taxes or insurance aren't paid, despite the lack of monthly payments. He views them as predatory products that erode home equity and trap seniors in debt, advising against them as a retirement strategy.
One out of every ten reverse mortgage is in default and could face foreclosure. Reverse mortgages are expensive. After ten years, interest and ongoing fees on a lump sum reverse mortgage can add up to more than $100,000, after twenty years interest can reach more than $300,000 on top of the original loan amount.
Even if you don't get as much money from a home equity loan as you would with a reverse mortgage, they're a much safer option. They set up immediate monthly payments and don't include the danger of rapidly increasing debt. That alone makes them a better choice for most people.
When the borrower of a reverse mortgage passes away, the loan becomes due. Heirs will still inherit the property but then must make a decision. Their options include: Paying off the reverse mortgage (if the home's value exceeds the loan balance) by refinancing, using personal funds, or selling the house.
“The purchase price of the home is its cost basis,” Brown says. “If the property is sold after the death of the owner, it gets a new cost basis, so no tax would be due.
How Do Banks Make Money From a Reverse Mortgage? Lenders mainly make money on the interest that accrues on the loan balance. They also may charge an origination fee and are paid by selling loans to secondary market investors.
Even though you get money from a reverse mortgage, you still own the home. This means you have to pay property taxes, insurance, and take care of the maintenance. If you can't keep up with these responsibilities, it could lead to problems.
The good news for seniors is that taking out a reverse mortgage does not directly reduce or interfere with Social Security retirement benefits. Social Security payments are calculated based on your earnings history, not your assets or the type of financial products you use in retirement.
“Thinking of getting a reverse mortgage?” Ramsey asked. “Bad idea. Reverse mortgages sound like a good plan — after all, who wouldn't want a dream retirement funded entirely by their house! But here's the truth: Reverse mortgages are major rip-offs.”
That's because reverse mortgage lenders factor your life expectancy into the equation. At age 65, with a life expectancy of 85, lenders anticipate your balance could grow for 20 years. Based on this, older borrowers can take advantage of more equity and a higher loan amount.
The "6-month rule" for reverse mortgages refers to the requirement that the loan must be repaid if the home is no longer your principal residence for more than six consecutive months (or 12 for medical stays). It also means that after the last borrower dies, heirs generally have six months (after a "due and payable" notice) to repay the loan, sell the home, or arrange a deed-in-lieu of foreclosure to avoid foreclosure proceedings, with potential extensions for selling.
If you're a homeowner aged 62 or older, a reverse mortgage can help you obtain tax-free income, allowing you to stay in your home, pay bills, supplement your income and more. A reverse mortgage isn't free money: The borrowing costs can be high, and you'll still need to pay for homeowners insurance and property taxes.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.