Yes, you can sell a house that carries a reverse mortgage. You still own it, and the decision to sell is yours. What catches people off guard is the payoff number: reverse mortgages compound interest monthly, so the balance grows whether you are making draws or not. And if you inherited the house, there is a federal deadline you probably have not been told about.
Why the Balance Is Larger Than It Looks
A HECM (Home Equity Conversion Mortgage), the FHA-insured product that covers roughly 95 percent of all reverse mortgages in the United States, does not require monthly payments. That is the appeal. But deferred interest still accrues. Under the HECM program, interest compounds monthly on both the outstanding principal and any previously accrued interest.
Here is what that compounding looks like on a $150,000 initial draw at 5 percent annual interest:
| Years since origination | Approximate loan balance |
|---|---|
| 5 years | $192,000 |
| 10 years | $245,000 |
| 15 years | $313,000 |
The home's market value may or may not have kept pace. If the HECM was originated near the peak of local prices, or if the neighborhood has not appreciated much in the years since, the loan balance can approach or exceed what the house is worth today. That leads to the mechanism most articles on this topic skip: the 95 percent rule, covered below.
Selling as the Homeowner vs Selling as the Heir
These are different situations with different timelines and different legal footing.
If you are the homeowner: You can sell at any time. The HECM lien is paid off at closing from the sale proceeds, the same as any other mortgage. If the house sells for more than the loan balance, you keep the difference. There is no prepayment penalty and no restriction on when you can close.
If you inherited the house: You are working against a federal deadline. Under 24 CFR 206.125, the HECM regulation, the loan becomes due and payable when the last surviving borrower dies or permanently vacates the property. HUD's Mortgagee Letter 2015-15 sets the standard servicer timeline: heirs have 30 days from the servicer's notification to declare their intent, then an initial period of 6 months to sell or pay off the balance. Two additional 90-day extensions are available if the heir is actively working toward a sale and documents that progress to the servicer in writing. The maximum window is therefore about 12 months, but the extensions are not automatic and not guaranteed.
The Probate Timing Problem
The HECM deadline does not pause for probate. In Florida, a straightforward formal probate typically takes 6 to 12 months under Fla. Stat. 733.613. Pennsylvania contested estates routinely run 9 to 12 months. If the estate's legal process runs past the HECM window and the heir has not applied for extensions, the servicer has authority to assign the loan to HUD and begin foreclosure proceedings. The house can still be sold at that point, but the heir is no longer in the driver's seat.
States with independent administration statutes move faster. Texas (Tex. Est. Code 401.001), California (Cal. Prob. Code 10500 under the Independent Administration of Estates Act), and Minnesota (Minn. Stat. 524.3-711) allow a personal representative with full authority to sell real property without court confirmation, which compresses the estate settlement timeline significantly. If the deceased lived in one of those states and the will grants independent authority, a personal representative can typically sell within 60 to 90 days of appointment.
The 95 Percent Rule When the House Is Underwater
If the loan balance exceeds the home's current market value, neither the heir nor the estate is personally responsible for the difference. HECM loans are non-recourse under 24 CFR 206.27(b)(1): the lender's only recourse is the property itself. The FHA mortgage insurance fund covers any shortfall between the sale price and the outstanding balance.
Under HUD Mortgagee Letter 2015-15, heirs who want to sell an underwater property to a third party can satisfy the HECM by selling for at least 95 percent of the current FHA-appraised value. The heir receives nothing from the sale, but also owes nothing out of pocket. This option requires a current FHA appraisal, ordered through an FHA-approved appraiser and typically costing $400 to $600.
This 95 percent option applies only to heirs dealing with a due-and-payable loan. A living borrower selling voluntarily simply pays off whatever the outstanding balance is at closing, and the non-recourse protection means any deficiency is covered by FHA insurance, not by the seller.
Worked Example: Maryland Homeowner Moving to Assisted Living
A homeowner in Anne Arundel County, Maryland took out a HECM in 2017 at age 72. The home was appraised at $310,000 at origination. She received $148,000 in total draws over the following years at a 4.75 percent interest rate compounding monthly. By late 2026, the balance had grown to approximately $182,000.
She is 81 now and moving to a memory care facility. The facility can hold her spot for 45 days.
The home's current market value is around $345,000 based on comparable sales in the county. Under Md. Tax-Prop. Code Ann. Section 12-103, Maryland charges a state transfer tax, and Anne Arundel County adds its own county transfer tax. Combined, sellers in this county typically pay roughly 1.5 percent of the sale price in transfer taxes.
| Traditional listing | Cash sale | |
|---|---|---|
| Sale price | $345,000 | $283,000 |
| Agent commission (5.5%) | $18,975 | $0 |
| Repairs and concessions | $6,500 | $0 |
| Transfer taxes (approx. 1.5%) | $5,175 | $4,245 |
| Net before payoff | $314,350 | $278,755 |
| HECM payoff | $182,000 | $182,000 |
| Net to seller | $132,350 | $96,755 |
The gap is about $35,600. If the family can list and close within 45 days, the traditional path returns considerably more. The problem is that a 45-day close on a financed transaction is tight, and the house has some deferred maintenance that may generate repair requests after inspection. If the facility spot is gone before the deal closes, she moves to a waiting list. The cash sale closes in 7 to 10 days, no repairs, no inspection contingency.
For more on how we price offers in the Maryland market, see our Maryland cash buyer page.
Who Should Not Use a Cash Sale
A cash sale at a below-market price is not the right choice when:
- The house is in good condition and the seller has 60 or more days to close
- The gap between a cash offer and a retail listing is large (over $50,000) and the timeline is not urgent
- Multiple heirs are involved and the family wants a court-documented sale to protect all parties from future disputes
- The estate is uncomplicated, probate is moving quickly, and a HECM extension has already been approved
A traditional listing through a qualified real estate agent will usually return more money when the timeline allows and the property shows well. A cash offer is a trade: you are paying for certainty, speed, and the removal of condition risk. If those things are not worth $35,000 in the example above, they should not be purchased.
If the situation involves an inherited property and probate is adding pressure on top of the HECM deadline, our inherited house page covers the probate mechanics in more detail. A local probate attorney is worth the consultation fee when the estate is large or contested.
Common Questions
What happens when a house with a reverse mortgage is sold?
The servicer provides a payoff statement with a per-diem figure showing interest accruing each day past the quoted date. At closing, the title company or escrow agent sends the payoff directly to the servicer. Any remaining equity after the payoff belongs to the seller or the estate. Under the non-recourse protection in 24 CFR 206.27(b)(1), neither a living borrower nor an heir owes anything out of pocket if the sale price falls short of the outstanding balance on an FHA-insured HECM.
Can heirs walk away from a house with a reverse mortgage?
Yes. Heirs can execute a deed-in-lieu of foreclosure, which transfers title to the servicer. Under the non-recourse rule, they owe nothing beyond the property itself. This only makes sense when the loan balance significantly exceeds the home's value and preserving equity is not possible. A deed-in-lieu avoids foreclosure on the estate's record but forfeits any equity that might exist.
What is the 95 percent rule on a reverse mortgage?
Under HUD Mortgagee Letter 2015-15, heirs who inherit a property with a HECM balance exceeding the home's market value can satisfy the loan by selling to a third party for at least 95 percent of the current FHA-appraised value. FHA mortgage insurance covers the gap between that sale price and the outstanding balance. The heir receives nothing from the proceeds but owes nothing out of pocket. A current FHA appraisal, typically $400 to $600, is required to set the benchmark.
Does selling a house with a reverse mortgage trigger capital gains tax?
The same rules apply as with any home sale. If the seller qualifies for the IRC Section 121 exclusion, having owned and used the home as a primary residence for 2 of the last 5 years, up to $250,000 in gain is excluded from federal tax ($500,000 for married couples filing jointly). For an estate, heirs typically receive a stepped-up cost basis to the date-of-death fair market value under IRC Section 1014, which eliminates most embedded gain. Confirm the specific numbers with a tax adviser before closing.
If you are dealing with a HECM and need to close quickly, call us at 208-540-8257 or visit our cash offer page. We buy houses in all 50 states and Washington, D.C., with our own funds. We can have a written offer to you within 24 hours of seeing the property, and you are not obligated to accept it. If a traditional listing would net you considerably more and the timeline allows, we will tell you that plainly.