What happens if I have a reverse mortgage and I want to sell my home? | Consumer Financial Protection Bureau (2024)

FAQs

What happens if you have a reverse mortgage and you want to sell your house? ›

Selling a house with a reverse mortgage is possible as long as the title is in your name. In fact, that's often what happens after the homeowner has passed on. As long as the loan is repaid, there's no penalty for selling beforehand. Your lender can neither force you nor keep you from selling your home.

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).

If your reverse mortgage loan is in default and you've received a notice that the loan is “due and payable,” you may sell your home for 95 percent of its appraised value.

With a reverse mortgage, the bank pays you from the equity in your home. There is no restriction on how you can use the money. The bank gets repaid when you sell your home, refinance, permanently move out, or pass away. At that time, you or your heirs must repay the loan plus interest in one payment.

If you surrender the deed and walk away, your lender will foreclose on the home and sell it to recoup its costs.

No. When you take out a reverse mortgage loan, the title to your home remains with you. This webpage has information about HECMs, which are the most common type of reverse mortgage. Most reverse mortgages are Home Equity Conversion Mortgages (HECMs).

A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.

No, reverse mortgage payments aren't taxable. Reverse mortgage payments are considered loan proceeds and not income. The lender pays you, the borrower, loan proceeds (in a lump sum, a monthly advance, a line of credit, or a combination of all three) while you continue to live in your home.

Reverse mortgage interest can be deducted only if the money was used to buy, build, or substantially improve the home. For example, if you used the loan proceeds to remodel a bathroom, you could deduct the interest, but only when you eventually pay off the loan.

A big downside to reverse mortgages is the loss of home equity. Because you're not paying down your reverse mortgage balance, you'll make less profit when you sell, or limit your borrowing power if you need a new loan. You'll pay high upfront fees.

What is the 60% rule in reverse mortgage? ›

According to this rule, the initial amount that a homeowner can borrow through a reverse mortgage is limited to 60% of the home's appraised value or the maximum claim amount, whichever is less.

If the end of your term is up before you pass away, then you have outlived your reverse mortgage proceeds. With a term payment plan, you reach your loan's principal limit—the maximum that you can borrow—at the end of the term. After that, you won't be able to receive additional proceeds from your reverse mortgage.

You can only take a reverse mortgage on your principal residence, which means that you live there for most of the year. Your reverse mortgage will mature if you're away from the property for more than six months for a nonmedical reason or more than 12 consecutive months in a medical facility.

The reverse mortgage lender cannot do anything that the owner of the property does not agree to allow the lender to do when the loan is originated. If you are on the loan with your mom, then you also have the right to stay in the home for as long as you wish.

A reverse mortgage loan becomes due and payable after your death and after the death of any coborrowers or of an eligible nonborrowing spouse.

In some circ*mstances, a reverse mortgage might be a good way to prevent a foreclosure. But not typically. Reverse mortgages are risky and expensive and are often foreclosed themselves.

It's a loan with some unique attributes, but the lender does not own the home. You, as the owner, retain the title on the property and the loan does not need to be repaid as long as you live up to the terms of the loan, which typically include: Paying property taxes.

Can you buy back a house that has a reverse mortgage? You do not need to repurchase the home. The reverse mortgage is a loan just like any other loan. The loan may be repaid at any time without penalty, and the home remains the property of the owner or their heirs.

Any mortgage, including a reverse mortgage, will impose a title lien. Liens on the property can only be released if the homeowner pays the debt. In those cases, the holder will provide a release of lien which indicates a clear title.