Are you thinking about selling your home, but don’t know how your mortgage will affect the sale? Are you unsure if you even can move while you’ve got a mortgage out on the property you want to sell? Don’t panic. Here’s the complete guide on everything to do with the selling process when you want to sell your house before the mortgage is paid off.
Why do people sell a house with a mortgage on it?
There are plenty of reasons why people might choose to sell a home even though they still have a mortgage on it. The most common reason is simply to move – maybe you need a bigger house because you have kids on the way, or maybe you want to move to a different area because of better employment opportunities. It happens very often that people will need to move before they’ve paid off the mortgage – probably more often than you think.
Of course, there are other reasons too. Sometimes people can no longer afford the mortgage payments and have to sell their homes to cover their debts. This is unfortunate, and it’s typically a slightly different process compared to selling your home in order to move elsewhere.
Another reason some people sell is in order to get away from a home that’s underwater – that doesn’t mean literally underwater of course, it means a house that is now worth less than the debt on the mortgage. This is another unfortunate situation, but not uncommon, especially in rural areas where property prices don’t always increase. This can also happen more often during times of economic instability and recession. We’ll look into this in more detail later, and why it might not always be a good idea to sell up when the property is underwater.
How do I know if I have mortgage payments still to pay?
The first step when you’re looking to sell your house is to figure out if you still have a mortgage to pay off. If you’re in any uncertainty here, you should contact your mortgage lender – they will have all the details on the payments you still have yet to make. They can often give advice on how to go about selling your home before the mortgage is concluded as well.
You should also be able to find out the remaining amount on your mortgage by looking at the paperwork and contract you will have signed to get your current mortgage. However, this might not give you the full details, especially if you are on a variable interest rate, where the interest will shift in ways that can’t be predicted from the outset of the loan. It is generally the quickest and easiest to contact your mortgage company for the information you need.
Can I sell my house before paying off the mortgage?
Yes, you can absolutely sell your home before your mortgage is fully paid off. As mentioned a lot of people do this in order to change to a different home, and there are procedures and protocols in place to help make sure that you can get through the process with as few issues as possible.
How soon can I sell a house after buying it?
You can sell your home as soon as you want. For example, you could even close on the purchase one day, and turn around and sell it the following day. Of course, this very rarely happens. However, if you decide you’ve bought the wrong home for you and your family, or if you need to suddenly move due to a great job offer elsewhere, you can get your home on the market as soon as you want to.
Am I still liable for the mortgage when the house is on the market?
Yes, you are absolutely still liable for your mortgage payment while your old home is on the market. During this time, you still own the home, and so you need to still pay off the mortgage as you agreed to do originally when you took out your mortgage loan. This can make it hard for you to arrange your new home before you have at least got someone interested in buying your old home, but your bank or mortgage lender will be able to help you navigate this difficulty.
When am I no longer responsible for the mortgage?
You will be responsible for your regular mortgage payment amounts until the home sells. This means that you will be responsible for the loan up until the closing date of the sale. It is important to remember that this could be weeks or even months after you start to sell your home. Obviously first there is the delay between putting your home on the market and getting offers from buyers, but there is also the delay when the sale is being processed. The average delay between an offer being made and closing the sale is around 35 to 40 days, but it could be much longer if your sale is part of a chain of purchases, or if there are other problems during the sale.
After closing, you should not have to may your monthly payment for that loan. However, you may become responsible for a different loan for a new home, of course.
When will my final mortgage payment be?
You should discuss with your bank or provider to see when your final payment will be. You might find that your final payment on your existing mortgage is due as normal in the course of the sale. However, some agreements state that your final monthly payment happens at closing. In this case, your final payment will usually come from the escrow account where your funds are being held, meaning that this money will not actually go through your hands at all. If you have to pay any closing costs, these would also come from the same escrow account.
How can I make the closing happen sooner?
There is not much you can do to make the closing happen sooner. You can try to encourage your buyer to make sure the process goes smoothly, but sometimes there are delays that cannot be helped. This is most common when there are other home purchases and sales in a chain, when someone else’s delay can cause delays for all the other homeowners involved. For example, one of the buyers in the chain could fail to gain proper approval for their borrowing during their escrow period, or other home sellers could back out of the chain, which can cause major delays. Sadly, it is not unknown for the closing to take many months, during which time you would continue to be responsible for the loan and interest payments.
What about a house that’s worth less than the mortgage?
When a home is worth less than the debt, or gives you negative equity, this is referred to as the home being underwater. This could also be referred to as upside down or just simply as an asset that is at a loss. Homes can become underwater due to a number of things. If there is significant damage to the building which is not covered by insurance, this can lower the value until it is less than the amount that remains on the debt. If your home is in an area with a lot of development or site work going into the area, on projects that would make the neighborhood less desirable, this could also lower the value.
What is a short sale?
Short sales in real estate are where the home is sold for less money than the total amount still owed on the loan, but where the lender lowers your balance somewhat. Not all sellers will qualify for this, as it is usually something financing bodies do when they worry that the remaining payment of the mortgages might be avoided. This means that you would get less funds than you need for a mortgage payoff. The remainder of the balance would have to come from your other funds and assets – and it will usually be far more than you could put on a credit card or more than you can easily gather. This means that sales of underwater homes are often a bad idea. If you can hold off selling, you can delay until you are hopefully in positive equity again.
Why might I still want to do a short sale?
A short sale means that you agree with the lenders to have a payoff amount of less than the remaining balance – the lender will effectively forgive some of your owed balance, giving you slightly more favorable terms.
Even though a short sale would mean that you still owe money on your previous home, you might find it preferable to sell anyway. This is the case if you need to cut ties from the home quickly, or if you have to move in a hurry. Of course, this could negatively affect your credit score, which might make it hard to get another home loan in the future.
When do I stop paying the mortgage on an underwater home?
The roadmap here is very similar to other times when you sell your real estate. Your final normal payment would likely be shortly before closing or at close. However, you would still have to pay for the remainder of the amount you owe. Most lenders will want this to be paid as soon as possible, and you could face a late fee if you cannot pay this quickly.
What other fees and costs do I have to pay?
When you sell your home, you may still have fees to pay, such as fees for your real estate agent, or any real estate sale taxes. You should carefully check what your leader and real estate agent requires when you close selling your home to a buyer. These would be separate from the loan repayments, but would still have to be paid as soon as possible. They should come straight out of the proceeds from your home sale, but be sure to check the contract to see if you are meant to cover them yourself.
What about if I want to buy a new house?
If you want to buy a new home, you will become part of a chain of purchasers and sellers. Typically, once your cash is in escrow, you will be able to have the proceeds from selling your home do towards the down payment on your new or current mortgage. This means that you would not see any of the cash from your sale. In an ideal world, you would be able to have this happen smoothly and without any interruption. This could mean that you immediately start paying your new monthly amounts – meaning that you never really stop paying the monthly amounts.
Bridge loan
Another way to make sure that you can buy a new home as quickly as possible is to get a bridge loan. This is where you get a new borrowing period so that you have the cash needed to put the down payment on a new home. However, it can be hard to get this kind of borrowing. This is because you would need to qualify for the bridge borrowing as well as a second mortgage. Being deemed able to afford all of this would mean having enough income to cover all the amounts you need to cover – which would mean having ten to fifteen times the total values as income – and income is one of the key things you need for mortgages.
Can I have two mortgages?
Yes, you can have multiple mortgages. This might be so that you can buy a holiday home, or so that you can buy a new home before you even start finding a buyer for your old home. There are some benefits to having multiple mortgages – for one, it lets you build equity in multiple properties as a real estate investment. However, you will need a lender to agree that you can cover the payment schedule, and you will probably get a higher rate of interest. However, having multiple properties can make it easier to cover a payoff amount when you find a buyer for your old home.
Final thoughts
Buying and selling properties can be hard. You need to consider any payoff amount that you could owe after the sale, and you should always check your contract carefully.
