Selling a house with a mortgage is a common occurrence for homeowners. A typical mortgage has a 15- or 30-year term, contrasting with the average time people live in their homes. According to a data report from the National Association of Realtors, homeowners live in their homes for ten years before selling.
If you’re like most sellers, you have a mortgage. So what happens during the selling process with a mortgage? First, you’ll use the proceeds from your home sale to pay off your mortgage. After paying off your mortgage, closing costs, and taxes, the remaining profit is yours to pocket.
Sometimes when you sell your home, the proceeds from your home equity are insufficient to pay the mortgage debt and other fees associated with the transaction. As a result, you’ll have to find enough funds to pay the balance to the mortgage lender when that happens.
If you’re ready to sell your home, please keep reading to learn more about how the process works and helpful advice to help you through this process.
Your Guide to Selling a House with a Mortgage
You don’t have to remain in your current home until the mortgage is fully paid off; here are five essential things to consider if you want to sell a house with an outstanding mortgage.
- By selling your home, you can pay down the current outstanding balance on your mortgage. At closing, your lender is guaranteed their due compensation.
- After clearing the mortgage debt and paying for all costs of selling your house, like commissions, taxes, and liens, you can pocket some profits (ideally). You can use the profits for a down payment on a new house.
- Should the sale proceeds be lower than your remaining mortgage balance and associated selling costs, you will require alternative sources to address the discrepancy.
- Even amidst the current cooling home market, real estate prices remain significantly high due to a surge in pandemic-driven house buying. Therefore, it is rarely seen for mortgage holders to have negative equity or owe more than their property’s worth.
- Falling behind on mortgage payments, selling before achieving enough equity in a home, or attempting to sell during a local market downturn can cause a mortgage to become underwater.
How to Sell a House with a Mortgage
Selling a home while owing on a mortgage is a widespread practice. To fulfill your loan agreement, you will likely need to begin selling your home and finding a buyer who can cover all outstanding mortgage debt. Once they finish paying in full, the deal is closed.
However, you must consider alternative resolutions if you are underwater on your mortgage.
Typically, homeowners who owe more on their house than what it’s worth won’t be able to sell. However, some individuals may opt for that choice if they can afford the difference and have no alternative but to part with the property.
After that, it’s time to reach out to the lender and plead for a short sale: selling your home for less than you owe. Before you can proceed with the transaction, the lender must accept your short sale proposal and approve your offer.
Ready to put your house on the market? Follow these steps to ensure that you consider your existing mortgage when selling.
Setting a Fair Listing Price
When you’re marketing your home, appropriate pricing is paramount. Setting the asking price too high can prove hazardous; once two to three weeks have passed, prospective buyers may lose interest and enthusiasm for your property. That’s why it’s essential to get the price right from day one – after around 21 days listing activity typically stalls due to a lack of demand or waning curiosity.
You can understand your home’s worth accurately through a comprehensive comparative market analysis (CMA) and by evaluating neighboring properties’ sales.
Initially, look at every comparable home listed in the environs of your property over the last half-year. As appraisers don’t use comps older than three months, you should narrow the duration further.
Visit the Federal Housing Finance Agency’s website. It provides numerous resources to assist you in understanding your situation better and finding a healthy solution for yourself – like their House Price Calculator. This nifty tool can help you estimate your home’s worth by factoring in the appreciation it has seen since originally purchased.
Finding the Right Time to Sell
No matter your circumstances, to get the highest return for your property, you must time it right: ensure that both market conditions and personal selling situations are in sync.
- Equity: If the sale of your home would cover all mortgage payments and selling costs, you could reap a significant return without having to pay any additional money out of pocket.
- Pristine house: Minor projects like refurbishing kitchen cabinets or upgrading bathroom sinks often come close to reimbursing themselves since they contribute towards the value of your home – which consequently results in an elevated selling price when it’s on the market.
- Seasons to sell: To get the most for your home, you should list it when buyers are actively looking. When temperatures become milder and days sunnier, many buyers search for homes with greater urgency. By listing your home during these optimal seasons of demand, you can maximize its potential to fetch a higher price than if listed at other times throughout the year.
- Time to move on: Whether you’re looking for additional space or have become an empty nester, it’s possible that your old home is too large and requires excessive maintenance–both of which might be remedied by downsizing. If you are content where you live now but the location doesn’t accommodate a social lifestyle, a new home may be beneficial to stay closer to loved ones.
Reviewing Local Comps
The housing market will help you determine the right price for your home. To get an accurate appraisal of your home, consider all the homes listed in its vicinity over the last three months or less. Appraisers will not evaluate sales data from over three months ago, so limit your scope for maximum accuracy.
Analyze the difference between the initial list prices of the homes and their actual sale prices to uncover any price deductions. Consider final list pricing relative to genuine sold figures to calculate a ratio for comparison. For optimal results, assess at least three properties that reasonably sold close-to market value.
Though the final sale price of a home is uncertain until all paperwork has been finalized, that doesn’t mean you can’t get an estimate by calling up the listing agent and inquiring. Don’t be shy—it could help you make informed decisions on future purchases.
Finding Remaining Loan Balance
Are you curious to discover how much money your mortgage loan still requires? As mandated by law, lenders are obliged to furnish the total amount needed to satisfy all remaining mortgage debt as of a designated date––this figure is known as the payoff amount. The loan balance is one of several key documents you need to sell a house.
When you’re ready to settle your loan entirely, the amount due includes any interest accrued until that point. The escrow company will contact your lender and provide them with updated information from the sale of your home so that they can adequately pay off this debt without delay.
Preparing Your House to Sell
Evaluate the cost and time that repairs and upgrades for your home require, carefully weighing them against their potential effects on its value. Before potential buyers look at your property, a pre-sale inspection can identify and fix all the necessary repairs.
If it reveals costly matters such as needing to replace the roof, you have two options: make those fixes or adjust your listing price accordingly. By doing so, you will be able to ensure that everything is in perfect working order before putting it up for sale.
Take a tour of your home and do some spring cleaning! Don’t be tempted to stuff possessions into cabinets, closets, basements, and attics; potential buyers will peek into all these areas. Instead, create an organized environment that allows them to envision themselves living there.
After tidying up, deep cleaning is the next step in creating a better living space. To achieve quicker and more efficient results, consider recruiting professional help to do the job.
Create a neutral environment by taking down family photos, souvenirs, religious symbols, diplomas and certificates, hobby supplies, or collections – like CDs and DVDs. This is so that buyers don’t experience an uncomfortable feeling of intruding into your home or form any negative opinions about you based on your lifestyle choices.
A fresh coat of paint can breathe new life into your home! Paint is an easy and effective way to make small rooms look bigger while drawing attention to exquisite architectural details like crown molding or trim. However, it is essential that you select the right color for your wall; warm neutral tones are often preferred. These hues will pair well with most furniture pieces so potential buyers can envision their things fitting perfectly into the room.
Staging your House to Sell
The objective is to make a positive impression on buyers and ensure your home stands out. Therefore, it’s best to focus on the areas that matter most–the kitchen, living room, primary suite, and bathrooms–to grab their attention. With these in top condition and looking fabulous, you’ll surely get those buyers knocking at your door.
Although staging usually focuses on minor details, you might need to update or lease your furniture if it appears outdated or worn.
Pay attention to the exterior of your home when staging – it’s often a buyer’s first impression. Keep your yard neat by mowing the grass, trimming shrubs and bushes, and refreshing mulch beds to create an inviting curb appeal. Additionally, you can add pops of color to liven up the exterior with flowers planted in pots or directly into front yard beds.
Can You Sell a House with Negative Equity
If you’re struggling to sell a home with a mortgage, it may be due to negative equity. Commonly known as being underwater or upside down, this means that the market value of your house is less than what you owe on it.
You require their approval to sell your property for less than the amount you owe to your lender. If they say yes, it is up to them whether to accept or reject offers on your home. This decision will harm your credit score; however, it’s preferable to being responsible for the entire mortgage payoff.
Pay the difference
If you need to make up the difference, tapping into your savings or liquidating investments is an option, although not ideal. Doing so will safeguard your credit score and give you sufficient time to save back up if you’re young enough.
Homeownership can be stressful.
It’s a typical occurrence to sell a house with an existing mortgage. Most real estate transactions involve properties that the seller still owes money on. So, knowing how much your home will pay off and what proceeds you expect from the sale when all commissions, closing costs, and property taxes are accounted for is essential.
Make sure to get an accurate payoff quote. The outstanding mortgage balance and local real estate market give you an accurate view of how much profit you can put toward your next home.
Consider selling to a cash buyer to avoid the hassle of a traditional sale with a real estate agent. Often, you’ll get a fair cash offer in a fraction of the time, and you don’t have to spend time and money preparing your home for sale or an agent commission. Another upside is that you can choose your closing date without worrying about borrowers being approved for a new mortgage.