Selling a home with a mortgage is actually quite common. So, if you’re in this situation with your home in the Bolivar, MO area – do not fret! The real estate agents at Partin Real Estate have navigated these waters before and will give you the knowledge you need to get your home sold.
In the following article we will explain the payoff process, equity, potential obstacles, and tips for a smooth sale.
Selling a home with a mortgage
Even though a mortgage is technically an encumbrance on your home, meaning someone else has a claim on the property (your lender), it’s actually not a cloud on the title. All you have to do is pay it off with the proceeds of the sale of your home. Here are the steps you need to take before selling a home with a mortgage.
Understanding your mortgage balance
The first step is to selling a home with a mortgage is to check your mortgage payoff amount.
Call your lender and ask for a payoff statement. This statement will tell you exactly how much you’ll need to pay the lender when you sell your home. The payoff amount changes every month, even on a fixed-rate mortgage, since you make monthly payments. You’ll continue making payments during the time your home is on the market. So, when your closing date is set, you’ll get a second payoff statement.
The statement will have instructions that tell you how to submit your final payment with the proceeds from the sale of your home. It will give you the specific amount to pay as well as the due date for the payment. It will include any accrued interest, penalties for prior late payments or an early payment penalty (if applicable), and any other charges.
Determining your home equity
Home equity is the difference between your home’s value and what you still owe on your mortgage. It’s the portion of your home that you own. You calculate your equity subtracting your payoff amount from the value of your home. You get the value of your home from an appraisal. Keep in mind that you may not sell your home for the full value of the appraisal.
Also, remember that selling a house costs money: There are closing costs to pay, real estate agent commissions, and attorney fees. Some of the proceeds of your home sale will go toward that. So, work with your real estate agent to determine if the net proceeds of the sale will be sufficient to pay off both your mortgage and the closing costs.
If you have negative equity (also known as being underwater on your mortgage), there will be some challenges. However, here are your options when selling a home with a mortgage would net you less than your payoff amount:
- Refinance your home: Under specific programs, like the since-defunct Home Affordable Refinance Program (HARP), homeowners with negative equity can refinance their mortgages to take advantage of a lower interest rate. Although HARP has ended, its successor programs continue to offer similar benefits for eligible borrowers.
- Modifying your loan: Sometimes a lender will allow you to modify your loan to reduce the interest rate, extend the term of your loan, or even reduce the principle balance. While this doesn’t immediately solve your problem, it can make your monthly payments more manageable and give you some time to wait for the real estate market to improve.
- Short sale: This is a last resort. A short sale is when the sale price of your home is less than the outstanding mortgage balance and your mortgage lender agrees to accept less than the amount owed on your home. While this is not ideal, a short sale can be a viable option to avoid foreclosure. It will likely impact your credit score.
- Use your savings account to cover the remaining mortgage balance: Yes, you’re losing money on this deal. However, if you absolutely need to sell your home for some reason (for example, if you need to move for a job) this might be your best option.
How to sell a home with a mortgage
Step 1: Set the right asking price
If after taking into consideration all of the above you think the net proceeds of selling your home will earn you enough to pay off the remaining balance of your mortgage and closing costs, find a good real estate agent. It’s important to choose someone with experience selling homes in your area because they’ll be better at setting a fair listing price for your home and generate buyer interest. They’ll also be able to help you consider any offers you receive and tell you if you’re getting the best deal possible. Further, you want to make sure you get along with because you’ll be in contact with them a lot during the sale process.
Your agent should also provide you with a seller’s net sheet which is an itemized work or balance sheet which will tell you all of the estimated costs and how much, if any, net proceeds you’ll receive.
Back to your listing price: There are significant advantages to setting a fair listing price. If homebuyers think your home is a good value at the price point you’ve settled on, you’re more likely to have multiple bidders on your home. This actually ends up generating a higher sale – which is paramount when selling a home with a mortgage – due to the increased competition. Additionally, when a homebuyer is getting a mortgage, that requires them getting an appraisal too. If your listing price is fair, the likelihood the buyer’s appraisal comes in significantly lower than yours and tanking the sale is much lower.
Step 2: Factor in selling costs
We’ve mentioned this a couple of times but it’s important to consider, especially when selling a home with a mortgage, because it may cause the net proceeds of your sale to be lower than what you owe on the loan. Your real estate agent, as we mentioned above, should give you an itemized report that will show you all the estimated costs and if your net proceeds is enough to pay off your mortgage.
Some common closing costs may include:
- Real estate agent commissions
- Title fees, escrow fees, etc.
- Potential repairs
- Staging expenses
- Early mortgage payoff fees
Step 3: Accept an offer and inform your lender
Once you’ve decided you’ve received the best offer possible and decide to accept, here’s what happens:
- Buyer will deposit earnest money: A deposit to the seller that shows good faith
- Buyer will schedule a home inspection: A professional inspector will check for potential issues with the property
- A title company will review the title: They’ll check for liens, claims, or recording errors
- Both parties will schedule a closing: The final step to finalize the sale
- Complete loan processing: Buyer’s lender will finalize the loan process
- Final walkthrough: Before closing, buyer will make sure the home is in the same condition as when they last viewed it
- Closing: Review and sign all the necessary documentation
Once you close on the sale, you’ll use the proceeds to pay off your mortgage lender and any outstanding fees or closing costs. A representative of your mortgage lender will be at the closing to collect the money due to them. Whatever is left is your profit.
Tips for selling a home with a mortgage smoothly
Selling a home with a mortgage can take a lot of things going your way. However, it is possible and happens all the time. Here’s some tips for a smooth selling process:
- Get a home appraisal and market analysis early to properly set your expectations
- Work with an experienced real estate agent
- Time your sale wisely to avoid prepayment penalties or tax implications, if possible
- Negotiate closing costs, if possible, to reduce your expenses
We help homeowners who are selling a home with a mortgage!
Selling a home with a mortgage IS possible with proper planning. We’ll work with you to check your mortgage details and help you maximize your sale price. Are you thinking of selling your home? Contact us for a free market evaluation to see what your home is worth.
