It can be challenging to help your client understand the inner workings of a reverse mortgage and how selling and marketing a property with one is different from the usual process. The key difference lies in the manner in which the loan is managed by the lender, should it surpass the price of the property. Below are some additional things that you should know as an agent.
How Do Reverse Mortgages Work?
A reverse mortgage is similar to a standard mortgage with the difference being the manner in which the money is paid. Reverse mortgages involve the client using the equity they have in the home as leverage, with the loan being paid out either monthly, as a line or credit or lump sum.
Homeowners routinely use such funds to cover home improvements, repairs, or unexpected medical bills. The amount that they can receive through their reverse mortgage is determined largely by their equity and age. The bank will be responsible for distributing reverse mortgage payments to them, and as they do the interest on the principle will increase.
How Are Reverse Mortgages Repaid?
Another way reverse mortgages differ from standard mortgages is that they do not always have a maturity date which is set. In other words, there may not be a date in which the loan has to be repaid completely. The standards will be established within the loan and could define the maturity date as the point in which the borrower sells the home, moves away, dies, or fails to pay property taxes or maintain acceptable upkeep.
Once you assist a client in selling the property, the lender must be the first to receive their share of the proceeds which will help them recoup any balance which is outstanding, unless the property has a lien resulting from property taxes which haven’t been paid. If the amount of the outstanding loan is lower than its sale price, either the client or their relative will get the difference.
What if The Property Loses Value?
If the value of your client’s property has fallen beneath the amount that they got from the reverse mortgage, you might have to perform the short sale. The good news is that a reverse mortgage is referred to as loans which are non-recourse, meaning that the lender will not be able to go after your client or their descendants for a difference between the final sale price and the loan amount outstanding. However, short sales do require a buy-in from the lender prior to listing the property at a lower price, so the lender may ask for an appraisal to determine the value before they agree to a listing.
Limitations To Selling A Home With A Reverse Mortgage
Most borrowers will sell their home by the maturity date of the reverse mortgage. With normal mortgages, real estate agents expect the value of the property to surpass the remaining mortgage balance at resale. However, for reverse mortgages, because the borrower is usually paid via installments, the principle of the mortgage will increase as opposed to decreasing. This means the loan could ultimately exceed the property resale value.