5.6 million homes were sold in the United States in 2020 alone. Many more have sold since then, and if you want to sell yours, you’ll have to think about your mortgage. Selling a house with a mortgage is not as straightforward as you might expect.
It depends on your mortgage payments, how much your house is worth, and more. But where should you start? Is it possible, and is it worth it?
Keep reading and learn more about selling a house with a mortgage.
Can You Sell Your Home with a Mortgage?
You can sell your home with a mortgage. But you may encounter some roadblocks when trying to do so. You cannot sell your house without still having your mortgage to pay.
There is no way to escape your mortgage loans this way. You need to understand what equity is before you sell your house. Equity is the price of your home when you deduct what you owe on it with your mortgage.
Suppose your home is $300,000. This may sound like a lot of money you can get back. But your mortgage is $100,000.
Subtracting this from the cost of your home leaves you with $200,000. This is the true equity of your home. But what does this mean for you if you decide to sell your home?
Equity is the money you will earn when selling your house. You cannot get the full worth because that is not true equity. You will agree to accept this amount of money when you sign the purchase agreement.
This is the agreement that legally ends the home’s sale. But when subtracting the mortgage from your home’s price, the result may still not be what you get. This is because there are closing costs and extra fees.
The Details
These can cost you several thousand dollars extra. While you will still have a lot of money afterward, it won’t be as much as you thought. It is not a good idea to sell your home if your home’s value is not more than what you owe on the mortgage.
This would prevent you from getting enough money to pay off the mortgage. When you have excess equity, it will be far easier to do this. This is true even if you don’t get as much as you thought you would for your home.
Your home’s equity is also not a static factor. You can change it in several ways. You can increase the equity by paying more of your mortgage before you sell the house. You can also add upgrades to your house.
Improving the home’s curb appeal and adding some new countertops or floors can help. These all work to increase the value of homes. While these upgrades won’t take away from your mortgage, they will add to the value of your home.
This will leave you with more equity to pay off your mortgage when you sell the house. Make sure that you have plenty of equity left over after the closing costs. Closing costs can be expensive. If they reduce your home’s equity to below the value of your mortgage, selling the house might not be a good idea.
What to Do If You’re Underwater
There are some cases when the price of a home isn’t enough to pay off a mortgage. This is known as being underwater. This may seem like a hopeless scenario.
How can you escape your mortgage when your home isn’t worth enough? You can wait to sell your house and make some upgrades. This may take a few years, but it can help to increase your home’s value.
You can pay off your mortgage little by little while you wait. But if you want to sell your house right away, this might not be an option. There are a few things you can do to keep the problem from getting any worse.
A short sale is the most common option. This is when you sell your home knowing that the equity is less than the value of your mortgage. This means you do not have to make up for the loss on the sale.
This is not something you can do on a whim.
You need to get permission from your mortgage lender to do this. Your bank also has a say in how it works. Suppose that your request for a short sale is approved.
Once people start making offers on your home, your bank will be the one to decide which offer is accepted and which ones are denied. A short sale means you do not have to make up for the loss on the sale. The downside of this option is that your credit score will take a big hit.
This may make it difficult to get another loan in the future. The good news is that you won’t have to pay the remaining balance on your mortgage. But what if you don’t like the sound of a short sale?
What You Need to Know
The other option is using your assets to pay off the remaining mortgage balance. Suppose that you sell your house for less than the mortgage value. After closing costs, you still are left with $5,000 in mortgage payments. Using money out of your pocket is the only way to solve this problem.
You could also sell some of your assets like your vehicle to pay off the mortgage. The benefit of this method is that your credit score won’t get damaged. The downside is that you will have to part with some of your assets.
The final option is to wait to sell your house. The housing market could always make a turn for the better. This would put the price of your home in a better position.
Making small investments in your home like new appliances or floors can increase your home value, too. This is a method for the long run and it might not be for everyone. But if you’re not in a rush to move, this may be the best option.
Understanding the Selling Process
Suppose you’ve decided to sell your house with a mortgage. You first need to contact your lender. This will allow you to see how much of your mortgage you’ll need to pay off every month once you make the sale.
This is known as a payoff statement. The amount you pay every month will not be the same. It may change with each payment you make.
You will get instructions on how to pay off your mortgage. This is very important if you are paying it off all at once. There may be penalties or extra fees to pay if you do this.
You then need to figure out how much money you will get when selling your home. It is not a good idea to sell your home if it is worth very little compared to your mortgage balance. But how can you know the exact worth of your house?
Start by looking for similar houses online and see what they sold for. This will give you a better idea. Hiring a home appraiser is even better.
What to Know
The appraiser can tell you exactly what your house is worth. The downside is that the appraiser might give your house a low appraisal value. You can avoid this problem by making sure your house looks new and fresh.
You can do this with some simple improvements like new paint or sprucing up the lawn. Once you know how much your house is worth, think about how much of that money will go into your pocket. You will need to pay off your mortgage, the real estate agent, the closing costs, and more.
You might not have much to work with after that. It is best to only sell your house if you have some remaining cash. You then need to find a good real estate agent or homebuyer.
Cash homebuyers are ideal because they will buy your house in a flash. You won’t have to wait as long as when you deal with a traditional real estate agent. You can get the money right away, too.
All About Selling a House with a Mortgage
Selling a house with a mortgage is not impossible. But you may encounter some issues along the way. You still need to pay off your mortgage when you sell your house.
Make sure that you get the right price when you sell. To learn more about selling your house, check out what we can do to help.