When you bought your home, you probably agreed to a mortgage with a 15- or 30-year repayment period. But life changes like a growing family or a job relocation might mean your home is no longer the right fit for you and your family. If you’re ready to move, you don’t have to wait until your mortgage is completely paid off before selling your home.
Steps to selling your house before the mortgage is paid off
You don’t have to be hesitant about selling your home while you still have a mortgage – in fact, it’s common for homeowners to sell their homes with mortgage payments still remaining. According to Zillow’s Consumer Housing Trends Report, most sellers own their homes for 13 years before they sell it, and 16% of sellers sell their homes after owning them for three years or less. Many people successfully sell homes with mortgages, but you’ll want to follow some specific steps to do this successfully.
Step 1: Contact your lender
Before you put your home up for sale, you’ll need to determine just how much you’ll need to pay to close out your mortgage – this is called your payoff amount. Your payoff amount will be calculated to include interest and any fees you might face, and your mortgage lender can provide you with this information. Be sure to also ask your lender about any prepayment fees you might be responsible for.
Step 2: Set a sale price
Your real estate agent can help you to identify an appropriate price for your home. Many factors will affect your home’s price, including comps from other homes that have sold in the area, the current real estate market, and your home’s condition. It’s best if your sale price will cover expenses including your mortgage payoff amount and closing costs, leaving you to walk away with any of the remaining profits.
Step 3: Get an estimated settlement statement
If you’re selling your home with the goal of making a profit, you’ll want to carefully review your estimated settlement statement. This statement serves to estimate all of the costs associated with selling your home, including title and escrow charges, loan charges, and more. The estimate will highlight any balance that you may owe at the end of the sale transaction. Keep in mind that the estimate can change, but it can give you an idea of what, if any, expenses you may be responsible for after the sale.
How to sell a home that’s underwater
Your home equity gradually accumulates based on your down payment and mortgage payments. Other factors, like increased or decreased home values, can also boost or reduce your equity. When you sell your home, that equity helps to pay back your mortgage lender and covers expenses, like closing costs. In some cases, your home’s value may drop while you own it, leaving you with a mortgage that’s for more than what your home is worth. In this case, your home is considered to be “underwater.”
To sell a home that’s underwater, you can contribute your own money to make up the difference between your equity and your mortgage. You could also choose to short sale the home, where you sell it for less than the balance that you owe on your mortgage. Your bank will need to agree to the short sale.
Who is responsible for the mortgage payment while your house is selling?
You’ll be responsible for all of your mortgage payments until your home’s sale’s closing day. Keep in mind that some sales can fall through, even at the last minute, so make sure that you make every mortgage payment on time, or you could face a late fee and a negative impact on your credit. You may run into a situation where your final mortgage payment falls on or near your closing. In this case, your lender might wrap that final payment into your closing costs. If you have questions about how to make your final mortgage payment, contact your lender ahead of time for clarification.
Can you have two mortgages at once?
When you’re selling your home and close on a new home before your previous house sells, you might find yourself in a situation where you have two mortgages at once. You can absolutely hold two mortgages at once, though this can be a financial strain. You won’t have your equity from your previous home to use as a down payment for the new home, so you may need to rely on savings to fund both the down payment and to cover the two mortgage payments. Other options include buying a new home on the contingency that your first home sells. You could also take out a bridge loan to help cover your new home’s down payment temporarily until your previous home sells.
It’s common to sell a home before paying off the mortgage, and there are many tools available to help you do this. Before proceeding with the sale, you’ll want to make sure that selling your home is a financially smart decision. Your real estate agent and lender can help you to understand the expenses you might face. It’s also important to make sure you make all of your mortgage payments until the day that your home’s sale closes.
Is it time to sell your home, even though you have remaining mortgage payments?