How a reverse mortgage works | Tips and terms to know | Steps to sell your house with a reverse mortgage | Summary | FAQs
Yes, you can sell a house with a reverse mortgage. Even if your lender has a lien on the property, the title still belongs to you, and you can sell without penalties at any time.
You’ll be responsible for paying the outstanding balance on your loan (plus fees and interest), but you can use money from your home sale to cover what you owe.
If your home has appreciated in value, you could make money off the sale. As long as the loan is fully paid back, you can pocket the difference.
Even if your home has lost value and you can’t cover your loan balance with proceeds from your home, you might not be responsible for paying the difference. With a home equity conversion mortgage (HECM, the most common type of reverse mortgage), you won’t have to pay more than 95% of your home’s appraised value.
💰 To get the most from your sale, shop around for agents and find one with the lowest fees. Our friends at Clever Real Estate negotiate with top-performing agents who provide full service for only 1.5% or $3,000.
How a reverse mortgage works
A reverse mortgage allows homeowners 62 and older to tap into their home equity without selling their homes or taking on monthly debt payments.
Instead of making mortgage payments to a lender, a reverse mortgage makes the lender pay you (hence the “reverse” part). They’ll pay out a portion of your home equity as a lump sum, monthly installments, or a revolving line of credit.
A reverse mortgage is a loan. So you’ll be responsible for repaying what you borrow when you move out or no longer live in the home as a primary residence.
You’ll also pay fees and interest. These are rolled into your balance, which you’ll pay at the end, not during the life of the loan.
Tips and terms to know about selling your house with a reverse mortgage
When you sell your home with a reverse mortgage, you won’t pay any penalties, just your outstanding loan balance.
Because a reverse mortgage has fees and interest charges, your outstanding balance will likely be higher than the loan amount you originally received. For homes that have appreciated in value, you can cover these extra costs with the sale of your home.
Whatever's left after you pay the balance is yours to keep.
The date you list or sell your house is considered a “maturity event,” which automatically makes your loan due and payable. Lenders will typically give you about six months to pay off your balance
Other events that could trigger a maturity event:
- Moving into an assisted living facility
- Falling behind on paying property taxes, insurance, or HOA fees
- Letting the property fall into severe disrepair
You can still sell your house if you owe more than it's worth. You also will NOT be responsible for paying the difference.
A reverse mortgage is a "non-recourse loan." That means lenders can’t sue you or seize assets. They can only take proceeds from the sale of your house.
If your mortgage balance exceeds the sale price, you’ll have to pay 95% of its current appraised value, even if that sum is much lower than what you owe. Your mortgage insurance will pay the rest.
That said, if you’re selling the home for less than what’s owed (called a “short sale”), your lender could technically report your loan to credit bureaus as a default — which could hurt your credit score.
Make sure you keep your lender in the loop, though, and it’s unlikely they’ll take this action.
Before selling your home with a reverse mortgage, you should run some numbers to see if it makes economic sense. Find out:
- How much your house is currently worth. A housing appraisal will help you determine this.
- How much you owe on your loan. Ask your lender for a payoff quote, which will break down all the costs you owe: loan balance, interest, mortgage insurance premiums, and fees.
You should also factor in the costs of selling your house — such as repairs, staging, real estate commissions, and closing.
The trick to getting the most from a home sale is to lower your fees. You can't control some fees, such as those on your reverse mortgage. But others, like real estate commissions, are squarely in your court.
How to sell your house with a reverse mortgage
1. Contact your lender
Your lender should be the first to know you want to sell. They can walk you through the steps to sell and help you understand what to expect. They’ll also provide you with a payoff quote, which tells you how much is left on your loan.
👉 Does contacting a lender trigger a maturity event?
No, telling your lender you want to sell your house doesn’t automatically make your reverse mortgage due. The maturity event will be the day you either list or sell your home — your lender will tell you which one it is.
2. Find a real estate agent with reverse mortgage experience
You might be tempted to sell your home yourself (known as "for sale by owner," or FSBO) to minimize transaction costs. But FSBO homes tend to sell for less than those sold with an agent, so the cost of a seller's agent is often worth it to get the best selling price and navigate all the steps.
And because reverse mortgages involve extra paperwork, it’s a good idea to find an agent who has experience selling houses with reverse mortgages.
Our friends at Clever Real Estate negotiate with top-performing agents so you don’t have to go it alone AND you can save thousands in fees!
3. Sell the home
Selling a home with a reverse mortgage is no different than selling a home without one. Your agent will help you prepare the sale, market the property, conduct showings, and help you find a potential buyer.
Perhaps the only limitation is the sale price. You’ll want to sell the house for close to the appraised value, especially if you expect to owe more on your loan than your home is worth.
4. Use balance from sale to pay back loan and fees
Once you sell your home, you’ll use the proceeds to pay off your reverse mortgage. You’ll also pay interest charges, fees, initial mortgage insurance premiums, closing costs, and real estate commissions.
Often your lender will require you to pay off your loan as soon as you sell the house. Depending on your reverse mortgage, however, your lender may give you six months from the sale date to pay off your loan, along with two three-month extensions.
Summary: Selling a house with a reverse mortgage
- You can sell your home with a reverse mortgage without penalties, though you'll have to pay the outstanding balance on your loan (plus fees, mortgage insurance premiums, interest, etc).
- If you owe more than your home is worth, you’ll need to pay 95% of its current appraised value.
FAQs about selling a house with a reverse mortgage
While you're required to pay off your loan as soon as you sell the house, your lender may give you 6 months, along with two 3-month extensions. Learn more about the selling process.
If you have the title to your house, then you still own it — even if your lender has a lien on it. Learn more about how a reverse mortgage works.
You can sell your house at any time without penalties. However, you'll need to pay back the remaining loan balance, or 95% of the home's appraised value. Learn more about how a reverse mortgage works.
You'll only need to pay capital gains taxes on a reverse mortgage sale IF you make a profit of at least $250,000 if you're single (or $500,000 if you're married).
