How to Sell Your House When It Still Has a Mortgage
In most cases, when people buy homes, they do so to live in the house for at least a few years. They may even stay in the same home for their entire lives. And since homes are expensive assets, most people finance their purchase with a mortgage. A mortgage is a home loan that is secured by the home. The lender agrees to lend you the money to buy the house, and in return, you agree to make monthly payments until the mortgage is paid off. What happens if you need or want to sell your house before the mortgage is paid off?
Can You Sell Your Home When It Still Has a Mortgage?
The most popular mortgage in the U.S. lasts for 30 years. If people had to wait 30 years to sell their homes, there would never be any turnover in the housing market. You can sell your home while it still has a mortgage. In fact, most homes that are sold have a mortgage.
The process of selling a home with a mortgage is not much different from selling a home that is paid off. The biggest difference is that you will need to get approval from your mortgage lender to sell the property. In this situation, equity is key. Your home equity is the portion of your home’s value that you own outright — it’s the difference between what your home is worth and how much you still owe on your mortgage.
For example, let’s say your home is worth $300,000 and you still owe $200,000 on your mortgage. In this case, you have $100,000 in equity. If you want to sell your home and pay off your mortgage, you’ll need to find a buyer who is willing to pay enough for the home to cover the outstanding balance on your loan. This can be difficult, especially if you owe more than your home is currently worth.
However, you can still sell your home even if you don’t have enough equity to pay off your mortgage. You’ll just need to get creative with the financing. For example, you could find a buyer who is willing to take over your mortgage payments. This is called a “wraparound mortgage.” The buyer would make their payments to you, and you would use that money to make your mortgage payments. You could also sell your home for less than what you owe on your mortgage and then pay the difference off in a lump sum. This is called a “short sale.”
Why Would You Sell Your Home With a Mortgage?
There are many reasons why people need or want to sell a house with a mortgage. Some people need to move for their job or to be closer to family. Others may want to downsize now that their kids have moved out, and some people may simply be unable to afford their mortgage payments anymore and need to sell to avoid foreclosure. In occasional cases, people may even want to sell their home because they’ve come into some money and can now pay off their mortgage outright.
Steps to Selling Your Home With a Mortgage
If you’re ready to sell your home with a mortgage, there are a few things you need to do.
1. Contact your lender to get approval to sell
You’ll need approval from your lender before selling your home. They may require that you provide proof of your financial situation and explain why you want to sell. They will also issue a statement that tells you how much you’ll need to pay the lender upon selling. The amount will change monthly, even on a fixed-rate mortgage, since you’re making payments regularly. Once your closing date is set, be prepared for a slightly different number. Approval from your lender can take a few weeks, so start this first step in the process as soon as possible.
2. Estimate your home value and equity
The next step is to determine how much your home is worth and how much equity you currently have. You can do this by working with a real estate agent or appraiser or by using an online home value estimator. A good start is looking at recent home sales in your neighborhood to get an idea of what similar homes are selling for.
You can also ask your lender for a “broker price opinion,” which is a valuation of your home done by a real estate agent that the lender trusts. However, working with an independent appraiser will get the most accurate and favorable valuation.
3. Determine how much you will make on the sale
Figuring out how much you'll make on the sale of your home is key to understanding whether or not selling is the right move for you. If you have a lot of equity in your home, you’ll likely be able to sell and pay off your mortgage without any problems. If you don’t have much equity, you may need to bring money to the table at closing.
In terms of how much money you'll make, keep in mind that you'll have to pay your agent's commission (usually around 6%) as well as other closing costs, which can be 2% to 5% of the sale price. The sale price minus the commission and closing costs is what's left for you.
You'll also need to factor in any outstanding liens or judgments against your property, which must be paid off at closing. These can include things like a home equity loan, property taxes, or HOA dues. Calculating all of these numbers will give you a good idea of how much money you can expect to make (or lose) on the sale of your home.
4. Find a reliable agent
Once you have a handle on your home’s value and how much money you can expect to make from the sale, it’s time to find an experienced real estate agent. Look for someone who has successfully closed short sales in the past and who is familiar with the process. They should also be familiar with your residential area and market conditions. Your agent will help you determine the right listing price, find qualified buyers, and negotiate a fair sale price.
Endnote
Selling your home with a mortgage can be a complicated process, but working with the right real estate agent can make it much easier. With their expertise and guidance, you can confidently sell your home and move on to the next stage of your life. Do you have more questions about selling your home with a mortgage?
