Homeowners may need to sell the house earlier than expected. Moreover, typically a homeowner lives around 12 years in their home. We know the mortgage repayment period may be longer than that. Homeowners often wonder if it is possible to sell a house with a mortgage. The answer is yes. You can sell your house even if you haven’t paid off the loan you took to buy the house. It is actually a common practice.
However, you need to know the right process for selling the house with a mortgage. In this article, we will guide you to effectively sell your house with a mortgage. Let’s look into the facts and ways of selling a house without fully repaying the mortgage loan.
Can You Sell Your House Before Repaying the Mortgage?
You can certainly sell your home with a mortgage. Homeowners usually need 15 to 30 years to repay the mortgage loan. So, it is very natural for some of them to want to sell their house before paying off the mortgage. They may want to sell the house early due to a change in job location, to earn profit from equity gain, and so on.
When you decide to sell a house with a mortgage you need to consider a few things. You can sell your house and pay the loan and other costs. You can also earn profit from it by using appropriate strategies.
How to You Sell Your House with a Mortgage?
Repaying your mortgage is essential after selling the house with all the other expenses. You should follow an appropriate process to manage the costs. In this article, we will discuss the step-by-step guideline of selling a house with a mortgage.
Get the Payoff Statement
Payoff statement states the amount you have to pay to the lender after selling your home. It also includes the interest amount, other fees, and the due date to repay. Prepayment penalties by the lender are also mentioned in this statement. But the mortgage loan amount you owe may vary month to month. To get the exact numbers, you should get a statement closer to the closing date. The total payoff amount you owe should ideally be less than the selling price.
Assess the Home Equity
In this step, you need to calculate your home equity. Generally, homeowners use this equity entirely to buy the next home. Others may invest some of it and keep the remaining amount as liquid. Home equity can be home investment equity and earned equity. Home investment equity is the increased value of your property due to appreciation. Home equity is gained by paying the principal amount of the mortgage loan monthly. It can also be earned by paying a down payment.
Calculate House Value
You need to calculate the current value of the house to select the selling price. A professional home appraisal can help to figure out the actual value of your property. You can also use online tools like AVM (Automated valuation models).
Then compare it with the value you have to repay to the lender. Second mortgage payoff, tax liability, and Home Equity Lines of Credit (HELOC) are your other liens. Here you also have to include the projected closing costs. Selling costs take up around 10% of the selling price. The actual outflow is much higher as it includes the mortgage payoff. The calculated property value and estimated outflows will lead you to select an appropriate selling price.
Find Out the Right Time to Sell by Assessing the Market Value
After determining the house value you have to wait for the right time to sell it. Try to sell the house when demand is high in the market but there are not many available homes. An expert real estate agent can help you by conducting a comparative market analysis. Also, you have to analyze whether you can buy another house during the changing market conditions.
Contact with a Real Estate Agent and List the House
A good real estate agent can make this entire process hassle-free. They will determine the best-asking price and market your property. Their expertise will help to earn a profit after covering the loan. Listing your house with a fair price is essential to attract potential buyers. Effective market analysis by the real estate agent will reduce the risk of loss. Real estate agents will help you to select the price according to the effective market analysis.
Evaluate the Offers and Sell Your House
After listing the house, you should repair and stage it to make it appealing to buyers. Then you can proceed to sell the house if the offer meets your expectations. Paying closing costs is an important step in this stage. Closing costs are the agent’s fees, prorated property tax, insurance and other selling related expenses. You can open escrow to manage the legal and financial aspects of both parties.
Repay the Mortgage Loan and Closing Costs
It is your primary responsibility to pay off the mortgage loan and unpaid interest after selling the house. Make sure to get the statement of loan settlement to deal with any legal issues. The deal may also include a mortgage prepayment penalty. It means the lenders may charge you an extra fee for repaying the loan early. The fee can be up to 2% of your outstanding principal amount.
After that, you have to pay the second mortgage and other liens like HELOC and tax lien. You have to pay the closing costs to sell the home which include the agent’s fees, prorated property tax, insurance, and other expenses. After repaying the liens and closing costs, you can keep the remaining proceeds as your profit. The profit can be used to invest in your next home. Otherwise, you may also keep it as liquid.
Can You Sell House With a Reverse Mortgage?
Yes, the homeowners can sell their home with a reverse mortgage (Home Equity Conversion Mortgage). When homeowners take a reverse mortgage, they do not need to pay while living in the house. However, if you decide to sell the house, you have to repay the loan with interest and other fees.
Can You Sell a House that is Underwater?
When your property value is less than what you owe to the lender it indicates being underwater. For example- you owe $400,000 to the lender and your property value is $300,000. It means your house has negative equity. To solve this situation, you can opt for one of the solutions given below-
Wait for the Property Value
You can wait for the market demand to increase. That way your property value will increase as well. You can also redecorate and stage your house so that you can sell it at a higher price.
Short Sale
It is not always feasible to wait for the property value to increase. Here your option is to short sale. To short sale, you must take permission from your lender as they will take less than what you owe. However, it will affect your credit score.
Can You Qualify for a Mortgage Before Selling House?
If you find a great house you want to buy, you will need another mortgage. Your DTI (Debt to income) ratio and credit score will be assessed in case of taking a second mortgage. Another mortgage will increase your DTI which puts a negative perspective on the lender. Because you have to repay two mortgages monthly which will affect the DTI ratio. You can get a second mortgage easily if you have a lower DTI ratio and a good credit score.
What are the Tax Implications of Selling a House with a Mortgage?
Are you wondering if you can save money from selling a house with a mortgage? The answer is yes. If your mortgage loan amount is larger, your profit from selling the house will be less. Thus, your capital gains tax may fall below the tax obligation or it can lower the tax. This is a great way to save money by selling a house with a mortgage
Conclusion
You can assuredly sell your house even if you haven’t repaid your mortgage loan. Yet you have to consider how to sell the house with a mortgage and earn a profit. Here the assistance from a proficient real estate agent will make the process efficacious. Their competence will help you to maximize your earnings from selling a house with a mortgage.
