Reverse mortgages are an interesting and unique type of loan that older homeowners often take advantage of when they desperately need cash for living expenses. How does it work? A reverse mortgage gets its name because the lender makes a monthly payment to the borrower, with these payments secured against equity in the home. The accumulation of these payments (and interest) isn’t due until the home is sold or otherwise vacated.
The borrower remains responsible for taxes, insurance and any homeowners’ insurance dues. This can be a helpful method for cash-strapped seniors to increase their monthly cash flow to supplement to Social Security, pension disbursements and other income. But what does that senior do when he or she needs to move in with a loved one, or into a retirement community?
Here’s a look at how to sell a home with a reverse mortgage while maximizing return:
- Check the Numbers: Just like with any home loan, you want to make sure you aren’t “under water” before selling. That is, you need to make more from the home sale than you owe on the reverse mortgage. It’s always a good idea to call the reverse mortgage company and get a payoff amount on your loan.
Check their numbers against your loan documents to make sure things add up, then consider how much your home is worth on the open market. Can you make money on the sale? Can you make enough money to do the things you want to do after your move, such as enter into a retirement community?
- Work With an Agent: A real estate agent can help you determine just how much your home is worth. This won’t be a wild guess, but rather an educated estimate based on comparable sales recently closed in your area. An agent can also help you prepare your home for sale, staging it in a way that will maximize its attractiveness and the amount a potential buyer will be willing to pay.
- Put Your Home on the Market: This is the true test. What kind of response do you get from buyers? If the offers that roll in are below asking price (and below the amount owed on the reverse mortgage), it may be a good idea to explore different options, such as converting your reverse mortgage into a conventional loan or renting out the home. Again, a trusted real estate agent can provide invaluable advice and guidance as you explore this portion of the sale.
- Close the Deal: Do the numbers look good? Fantastic! Close the deal and pay off your reverse mortgage. It may be a good idea to work with a real estate agent for tricky deals like this. It’s also important that you look into any consequences related to means-based programs that the homeowner is eligible for.
For example, if the homeowner is on Medicaid, income can affect the availability of benefits. Hopefully you’ll have enough money left over from the sale to secure a spot in an attractive retirement community or somewhere else that’s best suited to meet your needs.
When looking for a real estate agent, make sure you find one who offers both experience and knowledge. Why? Because experience and knowledge can make all the difference between your maximizing the sale of a home under a reverse mortgage and leaving money on the table. At CENTURY 21 Core Partners, we have the experience and knowledge necessary to close deals of all kinds, including homes that feature reverse mortgages.