A reverse mortgage doesn't stop you form selling your home, any more than a regular mortgage does. You will have to pay off your debt when you sell, however. If, for example, you sell your home for $250,000 when you have a $150,000 reverse mortgage, you only keep $100,000 of the sale proceeds.
If you own your home and you're 62 or older, you can take out a reverse mortgage based on the value of the property. It's similar to a home equity loan, except that there are no interest payments until you die, sell or move away. As you don't make monthly payments, you don't have to pass a credit check or meet the lender's income requirements. That makes it easier to qualify for than a home equity loan.
One of the benefits of taking out a reverse mortgage is that it's a no-recourse loan. If the sale of your house -- either during your lifetime or by your estate when you die -- doesn't pay off the debt, the lender can't go after your other assets. Instead, she eats the loss. If you have a $150,000 reverse mortgage and the value of your home has dropped to $125,000, the company gets the whole sale price, but nothing more.
While it's perfectly legal to sell your home, your reverse mortgage company may have something to say about your asking price. If, for example, you decide to sell it to your brother for half the market value, the company will order an appraisal to find out the actual value. If your sale price won't pay off the loan and doesn't cover the value of the house, a reverse-mortgage lender can foreclose and take the house instead.
If you sell to move into assisted living or in with family, having the lender foreclose may not matter much. If you hope to buy another house, the credit damage from foreclosing will make it harder to get a good deal. When the sales price is very close to the appraised value, the company usually doesn't foreclose. If it did, it would have to turn around and sell the house at auction itself, and it wouldn't realize enough extra to make that worthwhile.
- Jupiterimages/Polka Dot/Getty Images
- Can a Person Inherit a Mortgage?
- What Are the Benefits of Paying Down a Mortgage?
- "When You Refinance a Mortgage and Buy Another Property, Does the Bank Own Both Properties?"
- What Makes a House More Valuable for Appraisal?
- Tax Appraisals vs. Real Estate Appraisals
- How to Use Collateral to Purchase a Home
- Second Home Mortgage Requirements
- Spending on Your Car Vs. Your Home