You still owe money on your home, but you want to sell it. Is this possible?
Since most mortgage terms are 30 years long, homeowners sell their homes that still have mortgages on them all of the time. It is possible to sell your home while you still have a mortgage, but you should know how it works before doing it yourself.
Below are the steps you should take before selling your home with a mortgage.
Find Out Your Payoff Amount
Before you decide to sell, find out how much you owe on your mortgage. This will help determine if selling is a possibility. Keep in mind that the payoff you receive is only good for a short time. You’ll need another payoff when you are actually ready to transfer funds (sell the house). For now, though, the payoff can give you an idea if you can afford to move.
Figure out Your Home’s Value
Once you know how much you on the home, you should know the home’s value. The value determines how much you can ask buyers to pay. You may not get the price you list the home for, but you should list it for a price that’s close to its value.
You can get a ballpark estimate of your home’s value from your real estate agent. After a realtor views your home, he or she can compare it to recent sales and come up with an estimated value. This is the best estimate of the amount you can ask for the home.
With the payoff amount and estimated value in hand, you can determine if selling makes sense. For example, if you owe $200,000 and the realtor estimates your home is worth $150,000, you may not want to sell yet. If you do, you’ll have to cough up the extra $50,000 to pay the loan in full.
On the other hand, if the value is $300,000, you would walk away with $100,000 minus any fees you must pay as the seller.
Make Sure the Title is Clear
If you do move forward with selling your home, you must make sure the title is clear. Your realtor should help you with this step. If not, you can find your own title agent and pay them to do a title search. This search determines if there are any liens on your property with the exception of the mortgage.
If you do have liens on the property, you’ll need to settle them before the closing. Most lenders won’t allow a borrower to buy a home if there are liens on the property. Liens could be for unpaid taxes, unpaid contractor claims, or any other debt that a creditor attached to your home. Since liens transfer with the property, banks require payment in full before clearing a buyer’s loan to close.
Make Sure you Don’t Have a Prepayment Penalty
While rare, some loans may still have a prepayment penalty attached to them. Read the fine print on your mortgage and note to determine if this is the case for your loan. If you have a prepayment penalty, it may cost you more money than you thought to pay off the loan.
Know the Bottom Line
It costs money to sell a home. You’ll pay the realtor commission, certain taxes, and closing costs. The exact fees vary by location. Before you agree to sell, you should get an estimate of your bottom line. In other words, how much money will you walk away with after the sale?
Your realtor can help you with this step before you list the home for sale. The realtor can estimate your costs and using your payoff quote can help you see what you’ll have as profit. If you come up short, you have decisions to make. If you have the money to make up the difference, you can still sell your home. If you don’t, you may have to wait until your home appreciates or you pay more of your loan balance down.
Dealing with an Underwater Home
If you owe more than your home’s worth and you have to move, you have one more option. It’s called a short sale. Unfortunately, you can’t decide if you can sell your home as a short sale – it’s up to the bank that holds your mortgage. If you are in this position, talk with your bank and ask them about the possibility of a short sale. If they agree, you’ll be able to accept a price for the home that’s less than what you owe. The lender will consider the loan paid, but it will affect your credit, as they will not that the account was settled for less than the full amount.
Short sales can take a while and can cause many headaches as the bank is involved in the entire process. It’s not unusual to see a short sale take as long as six months once you find a suitable borrower and settle on a price.
The bottom line is that you can sell your home while you have a mortgage, but the home should be worth enough to pay off the loan. If you plan to buy another home too, you’ll either need enough money saved for a down payment or have enough proceeds to cover the loan payoff, plus the down payment on your new home.Click to See the Latest Mortgage Rates»