Most homeowners purchase their homes with a 30-year-fixed rate mortgage. However, on average, many only live there for about eight to 13 years. Once they decide to move, they sell their homes even when they owe money on a mortgage. This is a common practice in the real estate sector.
When selling your home with a mortgage, the goal should be to sell it for more than your outstanding balance. This way, you can pay off the mortgage and still remain with enough cash to purchase your next house or invest. You’ll need to cover the difference out of your pocket if you sell for less than your outstanding mortgage.
As a legally-abiding agreement, your mortgage must be paid once you decide to sell your home. And here’s how you sell your home with a mortgage:
Get a Payoff Quote
The first step to selling your home with a mortgage is determining your loan balance. Contact your lender and request a payoff quote to determine your balance. This will help you know the amount you must pay your mortgage lender to satisfy your agreement and release the lien. It can help you estimate how much you’ll get from your home sale. Getting a payoff quote can also help you set a listing price that will ensure you cover the mortgage and remain profitable.
Ensure you get your payoff quote at least before your intended closing date. It’s always advisable to add a few buffer days if you miss the set date. Inquire from your lender about the per diem interest fees if you go past the payoff quote date. This can help you prepare properly enough to pay off your mortgage once you sell your house.
Check Your Home Value
The next thing you need to do when selling your home with a mortgage is to determine how much your house is currently worth. Knowing your home’s value can make it easier to set an asking price, will sell your property fast, and enable you to pay off the mortgage. You can get an estimated value of your home by checking online using a home value estimator. These online tools will compare details about your home against housing market data from different sources to determine your home’s value. Most online home estimators only need your home’s address to give an instant estimate.
For a more precise figure, your realtor can employ a comparative market analysis to evaluate your home’s value based on recent comparable home sales in your area. They can also visit your property for a more detailed assessment. Knowing how much your home is worth and the payoff amount can help you establish how much equity you have in your home. Your home’s equity is the difference between your home’s value and your mortgage balance. So, the more equity you have, the more money you’ll keep after completing your home sale.
Price Your House Right
When selling your house with a mortgage, your asking price should be such that it increases your chances of getting multiple offers and can pay off the mortgage balance. Setting the right price can get several bidders on your property, making you sell for top dollar due to the competition between the buyers. You can use your home’s value and the prices of comparable listings in your area to determine your home’s most ideal asking price.
Repay Your Mortgage Lender
After you’ve finalized your house sale, the first thing you should do with the proceeds is to pay off your mortgage balance. Ensure you have a precise payoff quote and reach out to your lender to confirm you’ve paid it in full. Check that you pay any unpaid interest of the remaining days and early payment penalties to satisfy your loan in full.
It’s also crucial to pay other liens on your home. Not clearing any outstanding liens can prevent the buyer from closing on the home. Applying for your next mortgage might also not be possible since lenders often need a clear title. You must clear all outstanding liens you might have on your home and obtain proof that you’ve paid them off.
Cover Fees and Closing Costs
Whether you sell a home with a mortgage or without, you’ll be required to cover some closing costs and transaction fees. While buyers are usually responsible for most closing costs, you still have some costs to cover as a seller. Some of the costs associated with selling a house include the agent’s commission, usually a percentage of the home’s final purchase price split between your agent and the buyer’s agent.
Your closing costs can include an owner’s title policy, which you cover as a show of good faith. You also need to pay a part of the escrow account fees and prorated taxes for the days of the month you stay in the house before closing the sale. If you stay in a homeowner’s association, you’ll be required to pay your homeowner’s association dues. If you made huge profits from your house sale, you could use a part of it to cover your closing costs and your mortgage balance. Otherwise, you may have to cover the costs out of your own pocket.
However, you’ll have plenty of opportunities in a seller’s market to negotiate some of these costs. Carefully read your selling contract to understand precisely what you’re supposed to cover when selling your home. Once you cover your payoff amount, closing costs, and other liens on your home like second mortgages, the remaining money is the profit you keep from the house sale. You can use the sale’s proceeds to make a sizeable down payment on your next home and start your homeownership journey.
It’s absolutely possible to sell a house with a mortgage. All you need to do is to ensure you sell your house more than the amount you owe on the mortgage. This will ensure you can pay the mortgage balance off and remain with a significant profit after you sell your house. If your property doesn’t sell for more than your outstanding mortgage, you’ll be required to pay the difference out of your own pocket.