Can You Sell a Home With a Reverse Mortgage: Payoff and Deadlines

Yes, selling a home with a reverse mortgage is allowed at any time. You remain on the title for as long as you own the property, and when you sell, the loan balance is paid off from the sale proceeds at closing. Anything left over is yours. If the home sells for less than you owe, federal law caps your liability at the home’s value, so you won’t owe the lender out of pocket.¹

You Still Own the Home

A common misconception is that a reverse mortgage transfers the home to the lender. It doesn’t. A Home Equity Conversion Mortgage (HECM), the federally insured reverse mortgage available to homeowners 62 and older, places a lien on the property, but the borrower keeps the title and full control, including the right to sell.² People sell for the usual reasons: downsizing, moving closer to family, moving into care. The sale itself follows a simple principle. Pay off the loan from the proceeds, keep the rest.

How the Payoff Works at Closing

Closing looks a lot like any other home sale, with one added coordination step: the title or escrow company works directly with your reverse mortgage servicer to pay off the loan from the sale proceeds before any funds go to you.

Proceeds are distributed in order. The reverse mortgage payoff — principal drawn, accumulated interest, servicing fees, and mortgage insurance premiums charged over the life of the loan — is paid first. The servicer releases its lien, and the title company records the mortgage discharge with the county recorder so the buyer takes clean title.³ Closing costs come out next, and whatever remains goes to you.

One quirk to expect: interest on a reverse mortgage accrues daily, so the payoff figure changes between the date of the payoff statement and the actual closing date. Your title company will request an updated payoff or include per-diem adjustments in the final settlement numbers.

Get Your Payoff Number Before You List

Two numbers determine whether the sale leaves you with money in hand: what you owe and what the home is worth.

Request a payoff statement from your loan servicer. If HUD holds the loan directly, submit the request in writing with your FHA case number, property address, borrower name, and anticipated payoff date, and allow up to five business days.⁴ Private servicers follow a similar process. Because reverse mortgage interest compounds, the balance is typically much higher than the amount originally borrowed, so don’t rely on old statements or memory.

Then get a professional appraisal or broker price opinion. Subtract the payoff from current market value to estimate net equity. Positive number, and that is roughly what you keep after closing costs. Negative number, and the protections below matter.

Deadlines Only Apply if the Loan Is Already Due

A voluntary sale while you’re still living in the home and current on your obligations runs on your schedule. Federal regulations require only that the sale price be at least the lesser of your outstanding loan balance or the home’s appraised value.³ In most cases the home is worth more than the balance, so you list at market, pay off the loan at closing, and keep the difference.

The picture changes when a maturity event has already triggered the loan. A HECM becomes due and payable when the last surviving borrower dies, permanently moves out, or fails to pay property taxes or homeowners insurance. Once the servicer sends the due-and-payable notice, the borrower, estate, or heirs have 30 days to state their intentions, and the servicer must begin foreclosure within six months of the due date unless HUD approves additional time.⁵ That six-month window is the timeline to sell or pay off the balance.

Extensions past the initial six months are available from HUD if the home is genuinely being marketed. Documentation of active efforts helps: a current listing agreement, evidence of price reductions, local market data, and a personal representative letter or proof of probate status if the borrower has died. Keep detailed records from day one. Communicate with the servicer as soon as you decide to sell, share showings and offers, and respond to requests promptly. If the servicer concludes you aren’t making good-faith efforts, foreclosure begins and control of the sale passes out of your hands.

If You Owe More Than the Home Is Worth

Reverse mortgage balances grow over time while home values don’t always keep up, so it’s possible to end up underwater. Federal law limits what that costs you.

Non-Recourse Protection

Every HECM is a non-recourse loan by statute. The borrower “shall not be liable for any difference between the net amount of the remaining indebtedness…and the amount recovered by the mortgagee” from the sale or from insurance proceeds.¹ The implementing regulation reinforces it: no personal liability, collection only through the home, and no deficiency judgment if the lender forecloses.⁶ Neither you nor your estate will ever owe more than what the home sells for.

The 95 Percent Rule

When the loan is due and payable and the home is underwater, the sale can still close if the property sells for at least 95 percent of its current appraised value. Net proceeds go toward the loan balance, and FHA mortgage insurance covers the gap between the sale price and the full amount owed.⁵ The same regulation caps closing costs at the greater of 11 percent of the sale price or a fixed dollar amount set by HUD.

An example. You owe $320,000. The home appraises at $280,000. The property can be sold for as little as $266,000 (95 percent of $280,000). The FHA insurance fund absorbs the remaining $54,000 shortfall, and neither you nor your heirs owe anything more.⁷ The servicer must approve the sale at this threshold before it closes.

Selling Costs That Come Out of Your Proceeds

Reverse mortgage or not, selling a home carries the usual costs. Subtract these from the sale price along with the loan payoff to estimate what you actually pocket.

Real estate agent commissions typically run about 5 to 6 percent of the sale price, split between listing and buyer’s agents. On a $300,000 sale that’s $15,000 to $18,000.
Title insurance is usually 0.5 to 1 percent of the purchase price, often $1,500 to $3,000 or more depending on location.
Recording fees to file the lien release and deed transfer vary by county but are typically modest.
Transfer taxes are charged in some states and localities. Several states charge none; others charge up to about 0.65 percent of the sale price or more.
Prorated property taxes and HOA fees through the closing date come out of your side of the settlement.

Taxes and Medicaid to Plan For

The money you originally received from the reverse mortgage isn’t taxable — it was a loan advance, not income.⁸ The sale itself, however, can trigger capital gains. If the home was your primary residence for at least two of the five years before the sale, you can exclude up to $250,000 of gain, or up to $500,000 if you file jointly.⁹ Most long-time reverse mortgage borrowers fall well within these thresholds. Accrued interest on a reverse mortgage is treated as home equity debt interest and is generally not deductible as it accrues; ask a tax professional whether any portion paid at closing might qualify.

Medicaid is the sleeper issue. Your home is generally an exempt asset for Medicaid purposes, but the moment you sell, the proceeds become a countable asset. The individual asset limit is often around $2,000, so even modest sale proceeds can push you over and cost you coverage until you spend down. If you’re on Medicaid, talk with an elder law attorney before listing. Spending on exempt items like medical equipment, home modifications, or prepaid funeral plans is one path; gifting proceeds to family isn’t, because Medicaid’s five-year look-back penalty applies.

If You’re an Heir Selling After the Borrower’s Death

When the last surviving borrower dies and there’s no eligible non-borrowing spouse, the loan becomes due and payable. The lender sends a due-and-payable notice to the estate and heirs, who have 30 days to state their intentions and up to six months to follow through.¹⁰ Heirs generally have three options:

Sell and keep any surplus. If the home is worth more than the loan balance, sell, pay off the reverse mortgage from the proceeds, and keep the difference.
Pay off the loan and keep the home. Refinance into a new mortgage or use other funds to cover the balance. If the home is underwater, heirs can satisfy the debt by paying 95 percent of the appraised value instead of the full amount owed.
Walk away. Heirs have no obligation to keep the home or repay the loan. They can let the lender foreclose or sign a deed in lieu of foreclosure. Because the loan is non-recourse, the estate and heirs owe nothing beyond the home itself.¹

Heirs who need more time to sell can request HUD extensions using the same documentation approach that applies to any due-and-payable sale. One boundary worth noting: if the deceased borrower left an eligible non-borrowing spouse, the loan can be deferred rather than called due, and separate rules under 24 CFR 206.27 govern that situation.⁶ In that case the sale question doesn’t arise until the spouse’s own residency ends.

1
Office of the Law Revision Counsel. 12 USC 1715z-20 – Insurance of Home Equity Conversion Mortgages
2
U.S. Department of Housing and Urban Development (HUD). HUD FHA Reverse Mortgage for Seniors (HECM)
3
eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance – Section 206.125(c)
4
U.S. Department of Housing and Urban Development (HUD). How Do I Request a Payoff Statement of a HECM Reverse First Mortgage Assigned to HUD
5
eCFR. 24 CFR 206.125 – Acquisition and Sale of the Property
6
eCFR. 24 CFR 206.27 – Mortgage Provisions
7
Consumer Financial Protection Bureau. You Have a Reverse Mortgage – Know Your Rights and Responsibilities
8
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
9
Internal Revenue Service. Topic No. 701, Sale of Your Home
10
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die?