Did your parents take out a reverse mortgage on their home? Have they since passed away or moved into a nursing home? If so, the lender that gave your parents their reverse mortgage will need to have that loan paid back. And the easiest way to do that is to sell your parents’ former home.
That can be a challenge, though. Your parents’ home might have lost value since they took out their reverse mortgage. The home sale, then, might not generate enough income to cover the amount they borrowed in a reverse mortgage.
There is a strategy that could help, though: You could sell your parents’ home without the help of a listing Realtor. This way, you keep more of the proceeds when the home is sold. And if you are paying back a reverse mortgage, you might need all the cash from the home sale that you can get.
A reserve mortgage, as its name suggests, is pretty much the opposite of a traditional mortgage. Homeowners who are 62 years or older, can take out a loan with a lender that is based on the equity they have in their home. Owners with equity of $150,000, say, might take out a reverse mortgage for $120,000. They would then receive monthly payments from their lender. It’s a way for older homeowners to boost their monthly incomes.
These owners don’t have to pay back the reverse mortgage until what is known as a maturity event happens. Usually, this event happens when the borrowers sell their home or pass away. At this point, the reverse mortgage comes due.
There is some leeway, though: In general, lenders allow six months for repayment. This gives the heirs or the borrowers—if they sold their home and didn’t pass away—time to sell the house to generate the income they need to pay back the reverse mortgage.
But what if the home has fallen in value since the borrowers took out their reverse mortgage? You might face a situation in which you need as many dollars as possible from that home sale to pay off the reverse mortgage. Say your parents’ former home is now worth just $200,000, but they took out a reverse mortgage of $190,000. You don’t have much equity to play with here.
That’s why selling your home by owner can pay off. If you sell the home with a listing agent, that agent will generally charge a commission of six percent of the home’s sales price. For a house that you sell for $200,000, that comes out to $12,000.
If you sell your home on your own, you’ll usually only have to pay a three percent commission to the agent representing your buyer. That saves you three percent of the sale price. When you’re dealing with a reverse mortgage, that extra three percent can make a big difference.
Are you trying to sell a house with a reverse mortgage? Call us. We can help you determine if selling by owner is a wise move.