Back HomeIs it possible to sell your house with an existing mortgage?
Selling a home that still has an active mortgage may seem unorthodox at first, but it’s more common than you might think. The vast majority of home mortgages run for 15 or 30 years. Yet, according to a National Association of Realtors survey, over 50% percent of sellers lived for 10 years in their home before selling.
If you ask real estate agents, many of them will tell you that their clients often still have an existing mortgage when they list their homes. So without a doubt, it’s certainly possible to sell a house before paying off what you owe to a lender.
Before you go on this path, take note of some key questions and tips below.
Frequently asked questions
How important is timing?
Although there’s no definitive rule about when you should sell your home, timing does play an important factor in your decision. One of the best ways this is exemplified is in the matter of home value appreciation, which cannot be rushed. This is why homeowners usually hold on to their properties for five years or more to ensure value increases over time.
And if you plan on selling your home less than two years after the initial purchase, you may have to pay additional taxes.
For example, if you own the home for less than a year, a short-term capital gains tax will be levied on the home sale. If you own the home for over a year but less than two years, the long-term capital gain tax rate will apply.
What happens to the monthly mortgage payments?
As far as mortgage payments are concerned, everything stays as is. You’re still the owner of the home until the sale officially closes and ownership transfers to the buyer. So until then, make sure you’re still making timely payments to your lender to avoid issues while you’re trying to sell the property.
Is it possible to have two mortgages?
For those who are selling and buying within roughly the same time, having two mortgages is possible. However, you have to check your debt-to-income (DTI) ratio first. For some buyers, a higher than average DTI ratio may dissuade lenders to approve a second mortgage. In such a case, it may be wise to be patient and wait for the proceeds of the sale to come through.
But there are some workarounds for those in a bit of a hurry. A bridge loan enables you to make a loan for your down payment while waiting for the sale to close. Additionally, an assumable mortgage lets the buyer take on your existing mortgage, but not without paying an additional amount to fully account for the sales price.
Can you sell a home for less than what you owe to the lender?
Though it’s highly unlikely to happen in today’s market, some properties incur negative equity or go “underwater.” In other words, the home is worth less than what is owed to the lender. A home that’s underwater isn’t impossible to sell, but it’s not easy to pull off.
There are some solutions to make it happen though. For instance, a buyer can pay the amount difference in cash during closing.
A buyer can also negotiate a short sale with their lender. This transaction essentially entails lowering the mortgage balance to help make the sale more likely to close. Naturally, the short sale prices are below market value. The downside to this approach is that it can severely affect credit score.
A better alternative is to stay in the home for a little longer before selling. While waiting for market conditions to improve, buyers can rent out the property and take steps to bump up home value.
A few tips to keep in mind
- Ascertain home value. Before committing to the home selling process, it’s crucial to double-check home value. Real estate agents can help you sift through mounds of data and provide you with a comparative market analysis. The latter examines comparable properties in your area and their respective sales prices.
- Speak with your lender. You need to know exactly how much you still owe. Contacting your lender as soon as possible allows you to consider all the costs that add up to your mortgage, including interest. Knowing the exact amount you owe will help inform your selling goals later on.
- Reduce the selling and buying overlap. If you want to minimize the time you’re juggling two mortgages, it may be wise to find buyers who are ready with cash offers. It may also be beneficial to seek out property investors who can quickly close on a home sale.
Do you have a few more concerns about selling a house before paying off your mortgage? Reach out to Berkshire Hathaway HomeServices Caliber Realty. To receive top-tier support on your real estate listing in Texas, contact 979.694.8844 or send an email to sales(at)bhhscaliber(dotted)com.
References
https://www.zillow.com/sellers-guide/can-you-sell-your-house-before-paying-off-mortgage/
