Selling A House With A Mortgage What You Need To Know
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Are you planning to sell your home this year? As a Customer Experience Manager at Orchard, I talk to people every day about the ins and outs of home selling. One of the most confusing parts of the process is the mortgage. In this post, Iâll answer the most common questions I get from customers about selling a house with a mortgage.
Its All In The Numbers
In real estate investing, it is said that the money is made in the buy. This means that a good purchase price is often the key to a successful deal. If you can get a property for a good price, you increase the odds of coming out ahead when it comes time to sell. If the purchase price is on the high end, on the other hand, youll likely watch your profit margin erode.
You should be able to buy the property, put it in great condition, and sell it at a price where you can still make a profit. Investors need to be able to turn around and sell the house quicklytypically at below-marketand a good purchase price makes this possible.
The purchase price is only one important number, however. Youll have to make some other calculations as well, including:
Gather Your Documents And Find A Buyer
Gather all the documents youll need to prove your financial hardship to the lender. These may include bank statements, medical bills, pay stubs, a termination notice from your former job, or a divorce decree. It is up to you to come up with a proposal. Be aware that the lender ultimately must approve a short sale after receiving all the details because the lender is the recipient of the proceeds. Your job is to find a buyer for your home.
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Why Lenders Assign Reverse Mortgages To Hud
Lets go over a little background first.
Reverse mortgages are typically only assigned to HUD after the loans reach a very high loan amount in relation to the original value or maximum claim amount .
Many of the homes that reach this point have little to no equity remaining in the property because borrowers have used all the funds available to them, and the interest accrues on the loan. This is the purpose of the loan.
It allowed the borrowers to live in the property payment-free. If the borrowers can afford to make monthly payments to keep equity in the property, they can with a reverse mortgage as well but most do not and that is their reason for getting the reverse mortgage in the first place, so that they can live in the home without having to make a payment.
Once the borrowers are no longer living in the home, HUDs servicer will move quickly toward foreclosure to minimize any losses if they feel that heirs are not actively pursuing loan payoff.
Because most of the loans that are assigned to HUD are lower equity situations, the longer they wait the more of a loss they will sustain. They would much rather have heirs pay the loans off, but they know this is not the typical outcome when there is not a lot of equity in the property.
can do to prevent that.
Otherwise, if they just start working with just anyone who contacts them and claims to be the heir, they can be subject to civil penalties and lawsuits if anyone is injured as a result.
How Your Mortgage Works
Your typical mortgage is a lump sum divided over a certain amount of years. That lump sum builds interest as each month passes. In the beginning, you’ll pay more toward the interest of your loan than your premium . Then, as the years progress, a larger part of your monthly payment goes toward the premium.
To illustrate this, let’s say you want to buy a $250,000 house, and put $50,000 down on the loan. The bank then loans you $200,000 at a 5% interest rate over 30 years. This is what your payments would look like over the first two years:
As you can see, each monthly payment is $1,074, but the first month has $833 going toward interest, and only $240 going toward the principal. In December 2020, the amount going to your interest has decreased to $809, and the amount going to your premium is $264. By December of 2020, you will have paid $19,715 in interest, and 6,053 toward your principal.
You would owe $193,948 on your loan.
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Selling A House With A Mortgage
Most of us take out a mortgage to buy our homes in many cases, a pretty hefty one. Its not unusual to sign up for a 20-year or 25-year mortgage. But what happens if you want to move and still have a mortgage hanging over your head? And what happens to a mortgage when you sell your house? Its easy to start looking over your paperwork and feel buried in terms and conditions. But take a breath moving with a mortgage is really, really common. And its probably easier than you think.
When youre looking at selling your home with a mortgage in the UK, you have a few options usually moving your mortgage to a new home , remortgaging, or early repayment. Well talk you through it.
Can I Give My House Back To The Bank Hamilton Without An Expensive Foreclosure
There are many ways to avoid an expensive foreclosure in Hamilton.
Your first step if youre trying to avoid foreclosure in Hamilton is to speak with your loan provider immediately to examine your choices to prevent home foreclosure.
You have to take action prior to getting too far behind on your mortgage payments in order to halt house foreclosure. You should contact your financial institution once you know you are likely to miss a home loan payment and inform them what is going on with your financial situation.
Your mortgage loan organization would rather work something out with you so they do not generate losses on your property by going through the actual foreclosure process.
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What Happens When You Sell A House With A Mortgage
The average seller lives in their home for 14 years before selling, according to the Zillow Group Consumer Housing Trends Report 2021, but the most common home financing is a 30-year term. So if youre wondering what happens to your mortgage when you sell your home, youre not alone.
It turns out that 63% of homeowners are still in the process of paying off their mortgages. If youre thinking of selling but are locked into another 17 years of mortgage payments, heres what you need to know.
Can I Move To A Bigger House Port My Mortgage And Borrow More
It is certainly possible to port your existing mortgage and borrow more, but it is more complicated than keeping the loan amount the same.
If you want to port and increase your borrowing, there are three key things you need to know:
Also Check: What Factors Go Into Mortgage Approval
Tip : Check Your Compliance To Federal Tax Laws If You Gift The House
When the home sale price between family members is lower than the propertys FMV, both the buyer and the seller need to be careful to comply with federal tax laws.
You should always try to sell at a price thats pretty close to the homes actual fair market value, because there are tax implications if you sell your home to a relative at less than fair market value, explains Beams.
Since youre essentially gifting your relative a portion of the homes value, taxes would need to be paid on that gift according to the federal gift tax law. Plus, the IRS might think that youre trying to avoid paying capital gains taxes or something like that.
For example, if youre selling your primary residence at a profit thats less than $250,000 if youre single , its exempt from capital gains tax. But if youre selling it for more, then youll need to pay a capital gains tax on the excess proceeds.
So, if your price reduction reduces your proceeds so that they fall below that exclusion threshold, the IRS will red flag the transaction as an attempt to sidestep the capital gains tax.
The second area to concentrate on is complying with federal gift tax laws.
When you sell your home for significantly less than its fair market value, the IRS considers the value of that reduction as a taxable gift to your relativeeven if no actual cash changes hands.
What Is The Process For Mortgage Release
To qualify for Mortgage Release, youll work with your mortgage company to:
- Complete the eligibility process, such as determining the value of the property and how much you still owe as well as reviewing your current hardship
- Review the options available under Mortgage Release
A mortgage release usually takes around 90 days to complete, but this could be shorter or longer depending upon your specific situation.
Your next steps depend on which option youve qualified for. These include immediately vacating the home, staying in the home for up to three months , or leasing the home for up to one year.
Additionally, when you vacate the home at the agreed-upon date, you are required to leave the homeinside and outsidein good condition, free of interior and exterior trash, debris or damage, and all personal belongings must be removed. In some cases, you may be eligible to receive up to $3,000 relocation assistance to use toward your moving expenses and to make the transition to new housing easier.
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Can You Sell A Home With A Mortgage
The short answer is yes. You can sell your home even if it has a balance on the existing mortgage. In fact, this is commonplace. Outside of refinances, this is probably the second most common way to pay off a mortgage because more people have a mortgage than own their property free and clear. Most people dont stay in their mortgages long enough to pay all the way through to the end of the loan.
When you sell your home, you can use your equity to pay off the loan balance and your share of any closing costs associated with the transaction. Its important to know that prepayment penalties may apply depending on the terms of your existing mortgage and how soon youre selling the home. Our friends at Rocket Mortgage® dont charge prepayment penalties, but if you have any doubt, check with your lender.
Selling your home?
Ask For A Loan Modification
The process of foreclosing is costly and long, and many times lenders would prefer to cut borrowers a break if it will keep them in the home and making payments. They can do this by modifying the loan, reducing the interest rate, extending the term or even forgiving principal. If a loan modification reduces the monthly payment enough that you can cover it, both parties can get what they want.
As is the case with other escape hatches, you can ask the lender for a modification, but the lender doesnt have to provide it. In any event, it cant hurt to ask.
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Cost Of Porting To A Cheaper House
|EQUITY LUMP SUM
|Table notes: All figures are simplified for illustration purposes and do not include fees and other costs associated with buying and selling.
Table notes: All figures are simplified for illustration purposes and do not include fees and other costs associated with buying and selling.
Does This Process Make Sense For You
For some homeowners who are in serious financial trouble, choosing to give a house back to the bank to avoid foreclosure makes sense. However, this must be a proactive process, and you need to take measures before foreclosure starts. You also can only use this process in the right circumstances and as a last resort.
How To Sell Your Home If You Have A Reverse Mortgage Loan
Is it true that if an inheritor or owner of a reverse mortgage decides to sell the home, and asks less than the amount of the loan, that the reverse mortgage company holding the note cannot request more than the amount the seller asked?
You have asked a question that covers distinctly different scenarios and the answer to each scenario differs based on the circumstances.
If a borrower passes and the home goes to heirs, the lender will also order an appraisal and if the property is worth less than what is owed on the mortgage, the lender will work with the borrowers heirs to allow the home to be sold at less than the loan balance. This would be known as a short sale and any such sale would require lender/HUD approval after they received and approved the contract for sale and had appraised the property.
HUD will also allow the heirs to repay the obligation at 95% of the current market valueor the amount owed, whichever is less upon the death of the reverse mortgage borrower. This is an option written into the mortgage loan documents and it also requires the lender or HUD to obtain an appraisal of the home.
Home Affordable Modification Program
The HAMP overview page describes succinctly the requirements that borrowers must meet to be eligible. To summarize, HAMP is designed to help homeowners and servicers avoid foreclosure by modifying the terms of the loan to make the mortgage payments affordable for the long-term.
The HAMP qualifying criteria include:
1) Borrower is delinquent on their mortgage or faces imminent risk of default
2) Property is occupied as borrower’s primary residence
3) Mortgage was originated on or before Jan. 1, 2009 and unpaid principal balance must be no greater than $729,750 for one-unit properties.
The HAMP overview page contains information about eligibility, program availability, and steps to take to process a HAMP request, including links to a request form, IRS 4506 form, and verification of income checklist.
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more so you can feel confident when you make decisions as a homebuyer and a homeowner.
Tip : Enlist Professional Legal Help To Navigate The Process
When youre selling to someone that you know, love, and trust, it can be tempting to handle the whole home sale arrangement without any professional assistance.
However, thatd be a mistake: third-party experts provide a buffer between you and your relative to prevent the appearance of impropriety when the IRS examines the transaction, and more.
Number one, these experts can help you determine the appropriate sale price for the home based on its fair market value. And secondly, they can help protect your relationship with the relative youre selling to. You dont want to create a permanent rift between family members because of a real estate transaction. Nothing is worth that.
OK, so maybe you agree that enlisting the help of one expert is a good idea, but do you really need the expense of both an attorney and a real estate agent if youre just selling to family?
It may not be necessary to hire an agent , but its definitely the smart choice.
Sometimes homeowners selling to relatives just go straight to an attorney to have the paperwork drawn up, but drawing up the contract is the easy part, explains Beams.
An attorney doesnt necessarily understand the whole home sale process. An agent will help you get through the inspections, appraisals, and the loan process too, which can be challenging.
Subtract Your Mortgage Balance From Your Homes Value
If the amount you owe on your mortgage exceeds your homes estimated value, youd be considered upside down on your mortgage and should begin to carefully assess your options. If you owe $150,000 on your mortgage, for example, but your home is worth only $100,000 in todays market, then youd be underwater by $50,000.