Yes, you can sell a house that has a reverse mortgage. A Home Equity Conversion Mortgage (HECM) is a loan secured by your home, and when you sell, the CFPB says you repay what you borrowed plus interest and fees out of the sale. If the home sells for more than the balance, the difference is yours. If it sells for less, federal rules protect you and your heirs. Below is the order of steps, the numbers to ask for and the decisions that save the most time.
TL;DR
- You can sell at any time. The loan is paid from the sale proceeds at closing, and what is left over goes to you or your estate.
- Start by asking your servicer for a written payoff statement. It shows the principal, interest and charges to the closing date.
- A HECM is non-recourse, so neither you nor your heirs owe more than the home’s value, even if the balance is higher than the sale price.
- If the loan is already due and payable, a sale at 95% of the appraised value can still satisfy it, with FHA mortgage insurance covering the gap.
- Reverse mortgage payments are not taxable income, and the home-sale gain exclusion of $250,000 ($500,000 for married couples filing jointly) can apply.
Table of Contents
- What happens to a reverse mortgage when you sell
- Who can sell, and why the title matters
- Step-by-step: selling a home with a reverse mortgage
- When the loan balance is higher than the home’s value
- Keep the loan in good standing while you sell
- Taxes when you sell
- Perspective: speed and certainty are worth pricing in
- Find a local buyer or agent who knows payoffs
- A pre-listing checklist
- FAQ
- Sources
What happens to a reverse mortgage when you sell
A reverse mortgage works differently from a regular mortgage while you live in the home: you receive money, and you make no required monthly loan payments. The balance grows over time as interest and mortgage insurance premiums are added. That balance comes due when a trigger event happens. The CFPB lists the triggers for a HECM: the last surviving borrower dies, sells the home, or stops living there as a principal residence.
Selling is the most common way the loan gets repaid. HUD’s HECM servicing guidance explains that when a loan becomes due and payable, the property is normally sold by the borrower or the borrower’s estate to pay off the outstanding balance. So a sale is not an exotic move. It is the standard path, and title companies and agents handle it routinely.
Two points of reassurance are worth knowing early:
- You can repay a HECM at any time. According to Investopedia, the loan can be repaid at any time without penalty, and neither the lender nor the government has a say in your decision to sell.
- At closing, the lender receives the payoff, and you receive any excess proceeds minus closing costs. That is the same flow as a sale with a conventional mortgage.
Who can sell, and why the title matters
The seller must be able to deliver clear title. If you are the borrower and still live in the home, you sign the sale documents like any other owner. If the borrower has died, the estate or the heirs sell, usually through the personal representative. In Michigan that often runs through probate, which we cover in our guide to selling probate real estate in Michigan.
If you cannot attend closing because of health, a properly drafted power of attorney may let someone sign for you. Title companies check specific details before they accept one, and our page on power of attorney for a home sale lists what they look for.
If other claims sit on the property, such as unpaid taxes, a contractor’s lien or a judgment, the title company will require them paid from proceeds too. Read how to sell a house with a lien before you list, so no surprise shows up in the title search.
Step-by-step: selling a home with a reverse mortgage
1. Get a payoff statement from your servicer
Call the company that services your loan, which may not be the lender who originated it. Ask for a written payoff figure good through a specific closing date. According to Zillow’s guide, the payoff includes the principal borrowed, interest owed and unpaid charges prorated to the closing date. The same guide notes that if a maturity event has occurred, you should notify the lender within 30 days and respond within 30 days to a due-and-payable letter. Confirm those deadlines against your own loan paperwork and servicer notices, because your letter is what governs your timeline.
Because interest and insurance premiums keep accruing, the payoff rises every month. Ask the servicer for a per-day figure so you can price the home with a realistic buffer.
2. Work out your equity before you price
Subtract the payoff and your expected selling costs from a realistic sale price. Selling costs include agent commissions, title charges, transfer taxes and any repairs you agree to make. Our Michigan seller closing costs breakdown shows what sellers actually net, which is the number that matters.
A simple example, using round figures for illustration only:
| Line | Amount |
|---|---|
| Expected sale price | $300,000 |
| Reverse mortgage payoff | $180,000 |
| Selling costs (agent, title, taxes, other) | $21,000 |
| Estimated cash to you or your estate | $99,000 |
These numbers are not a quote. They show the method: price, minus payoff, minus costs, equals your proceeds.
3. Choose how you want to sell
You have two main routes, and the right one depends on your timeline and the home’s condition.
- Traditional listing with an agent. Usually the route to the highest price when the home is in good shape and you can wait through showings and a buyer’s financing. Look for an agent who has closed sales with a reverse mortgage payoff before. Our ranking of the best real estate agents in Metro Detroit is a good starting list.
- Cash buyer. Useful when the loan is already due, the home needs repairs, or you need certainty and speed. Cash sales skip buyer financing and often let you sell as is. See our ranked cash home buyers in Metro Detroit, and our guide to selling a Michigan house as is for the legal steps.
Whichever route you choose, give the buyer or agent the payoff statement up front so the offer is built around the real number.
4. Expect an appraisal
When a HECM has become due and payable, the lender orders its own appraisal of the property. That appraisal matters, because it sets the reference value for the 95% rule described below. Keep the home accessible and in presentable condition so the appraiser sees it at its best.
5. List, accept an offer and open escrow
Once you have a contract, the title company or closing attorney orders the payoff from the servicer, runs the title search and prepares the settlement statement. Some states require an attorney at closing, so ask your title company what Michigan practice is in your county.
6. Close and receive the balance
At closing the closing agent sends the payoff to the servicer. According to Secure Title Company, whatever remains after the balance and closing costs goes to you or your estate. The servicer then releases its lien on the property, which is what gives the new owner clear title.
When the loan balance is higher than the home’s value
This is the case that worries borrowers and heirs most, and the rules are more forgiving than most people expect. HUD’s guidance states that because a HECM is non-recourse, the lender’s recovery is limited to the home’s value, and no deficiency judgment is taken against the borrower or the estate. In plain terms, you or your heirs do not have to find cash to make up a shortfall.
What covers the gap is FHA mortgage insurance. The CFPB explains that if you sell for the appraised value and the balance is higher, sale proceeds go to the balance and mortgage insurance pays any remainder.
The 95% rule
Searchers often ask about the “95 rule.” It applies once the loan is in default and you have received a due-and-payable notice. The CFPB says that in that situation you may sell for 95% of the appraised value, and mortgage insurance pays any remaining balance. A quick example with illustrative numbers:
| Item | Amount |
|---|---|
| Appraised value | $200,000 |
| 95% of appraised value | $190,000 |
| Loan balance | $230,000 |
| Sale at 95% accepted | $190,000 goes to the loan |
| Remaining $40,000 | Covered by FHA insurance, not billed to you or the estate |
The rule helps heirs especially. You can accept a reasonable offer from a buyer without chasing the highest possible price when the equity is already gone. The CFPB’s rights and responsibilities guide covers this situation, along with default notices, and points people to the servicer and to HUD-approved housing counseling.
Heirs have options
According to The Mortgage Reports, heirs can sell the home, repay the balance and keep the property, or walk away. If the home is worth more than the loan, selling and keeping the surplus is usually the cleanest choice. If it is worth less, the non-recourse protection means keeping it is optional, not required.
Keep the loan in good standing while you sell
If you are still living in the home and planning to sell in a few months, keep meeting your loan obligations until the day of closing. The HECM can become due sooner if you fail to pay property taxes or homeowners insurance, fail to maintain the home, or move out permanently. Fannie Mae’s overview lists the usual duties: pay property taxes, insurance and any HOA fees, live in the home as your primary residence, certify occupancy each year and maintain the property.
If you have already fallen behind, call your servicer at once. Fannie Mae advises contacting the servicer immediately if a default could lead to foreclosure. A HUD-approved housing counselor can walk you through the options, and selling is often the fastest, least stressful of them.
Taxes when you sell
Tax rules are where sellers often assume the worst, so here is what the IRS says.
- The loan proceeds are not income. The IRS states that reverse mortgage payments are loan proceeds, not income, so they are not taxable.
- Interest is not deducted until paid. The same page explains that accrued interest generally cannot be deducted until you pay it, usually when the loan is paid off in full. Whether it is deductible at all depends on how the loan is classified, so ask a tax professional.
- Gain on the sale may be excluded. Under IRS Publication 523, you may exclude up to $250,000 of gain, or $500,000 for a married couple filing jointly, if you owned and used the home as your main home for at least two of the five years before the sale.
If you are selling after the death of a borrower, or during a divorce, different tax questions arise. For the divorce case, our guide on protecting the $500K exclusion is the place to start. In every case, a CPA or enrolled agent can run the numbers for your situation.
Perspective: speed and certainty are worth pricing in
We rank Metro Detroit real estate service providers, and the sellers who write to us about reverse mortgages usually share one problem: a deadline they did not choose. A due-and-payable letter, an estate that needs to settle, or a parent moving to care all create a clock.
Our view is that the payoff statement should drive every decision. Once you know the exact number and how fast it grows, you can compare a full-price listing against a faster cash sale on net proceeds and on time, not on the headline offer. Sometimes the agent route wins. Sometimes a cash buyer’s certainty wins. The honest answer comes from the math.
We do not accept payment for ranking placement. Our lists of agents and cash buyers rest on our research and customer sentiment analysis, updated quarterly, with county-level detail for Wayne, Oakland and Macomb. We built them so a seller facing a deadline does not have to guess who to call first.
Bryan
Find a local buyer or agent who knows payoffs
If you are selling in Metro Detroit, we have done the comparison legwork. Our independent rankings cover cash home buyers across Metro Detroit and local real estate agents, and providers cannot pay to move up the list. Start with whichever route fits your timeline, then give each company your payoff statement and compare what you would actually net.
If you want to narrow it by city, we also publish rankings for Royal Oak, Sterling Heights and Madison Heights.
A pre-listing checklist
Use this list before you call anyone:
- Find your latest servicer statement and the servicer’s phone number.
- Request a written payoff good through a target closing date, plus the daily accrual.
- Confirm who has authority to sign: you, a co-borrower, an estate representative or an agent under power of attorney.
- Check that property taxes and homeowners insurance are current.
- Order a title search, or ask your title company to, so any liens surface early.
- Estimate net proceeds under two routes: a listing and a cash sale.
- Ask each buyer or agent how they have handled a reverse mortgage payoff before.
- If a due-and-payable letter has arrived, note its deadlines and talk to a HUD-approved housing counselor.
FAQ
Can I sell my house if I have a reverse mortgage?
Yes. The loan must be repaid when you sell, and the payoff comes out of the sale proceeds at closing. If the sale price exceeds the balance, you keep the difference. Contact your servicer for a payoff statement first.
Is there a penalty for paying off a reverse mortgage early?
No. A HECM can be repaid in whole or in part at any time without a prepayment penalty, according to The Mortgage Reports. That means you can sell whenever it suits you.
What if I owe more than the house is worth?
A HECM is non-recourse, so neither you nor your estate owes more than the home’s value, per HUD’s servicing guidance. FHA mortgage insurance covers the remaining difference.
What is the 95% rule for a reverse mortgage?
Once a loan is in default and a due-and-payable notice has been issued, you may sell for 95% of the appraised value, and mortgage insurance pays any remaining balance, according to the CFPB. It gives heirs room to accept a fair offer.
Do I pay taxes on the money from selling?
Reverse mortgage payments are not taxable income. Gain on the sale may be excluded up to $250,000, or $500,000 for married couples filing jointly, if you meet the ownership and use tests in IRS Publication 523. A tax professional can confirm your situation.
Sources
- CFPB: What happens if I have a reverse mortgage and I want to sell my home?
- CFPB: When do I have to pay back a reverse mortgage loan?
- CFPB: You have a reverse mortgage, know your rights and responsibilities
- HUD: HECM servicing guidance
- HelpWithMyBank.gov: When and how is a reverse mortgage repaid?
- Fannie Mae: Understand reverse mortgages
- IRS: For senior taxpayers
- IRS: Publication 523, Selling Your Home
- The Mortgage Reports: 10 biggest reverse mortgage myths
- Investopedia: Can you sell a house with a reverse mortgage?
- Secure Title Company: Selling a home with a reverse mortgage at closing
- Zillow: Selling a house with a reverse mortgage