How Does Selling A House Work With Mortgage

Can I Sell A House Before The Mortgage Term Ends

Absolutely. As long as you can afford to pay off the remaining balance, you can sell your home at any time. Alternatively, you can transfer your existing mortgage to a new property.

If youre selling to free up some cash and have no plans to buy another property immediately, make sure that the sale price is higher than the outstanding mortgage balance. This should include any fees you are liable to pay, such as early repayment charges. When property prices are low, negative equity when your house is worth less than the outstanding balance on the mortgage may be an issue, although this is relatively rare.

Buying And Selling At The Same Time

Finally, you have a third option: you can buy and sell at the same time. It might sound complicated, but with the right resources in place, it can actually be quite easy.

Traditionally, selling and buying at the same time has been difficult. You had to time your two transactions perfectly, negotiating with the buyer for a later closing date and pushing your lender to work fast to prevent any lag time between sales.

Fortunately, iBuyers have made this process much simpler. With programs like Opendoors trade-in offering, you can:

• Get a free cash offer in just 24 hours
• Make an offer on an existing Opendoor home
• Schedule your closing dates for both transactions simultaneously

Theres even an option if you want to sell your existing home and build a new construction property simultaneously. Both options let you choose your closing and move-in dates, as well as avoid selling hassles like showings, staging, open houses, and more.

What Happens To Your Mortgage When You Buy First

If youre trying to buy your new home before selling the old one, youll have to get creative about how to fund the down payment, since your equity is still tied up in your existing home. Here are a few options.

Contingent sale: When shopping for your new home, you can submit offers with a contingency, which notes that you cant close until your first home sells. In a competitive market, sellers may be less inclined to accept a contingent offer, but if you can get it accepted, you can put the home you want under contract while you work on selling.

Bridge loan: A bridge loan is a temporary loan that helps you pay for your new homes down payment while you wait for the equity in your old home to free up. Youll make payments on both your mortgage and the loan while you wait for your home to sell. Note that if your old home takes a long time to sell, you could be on the hook for two mortgages and one loan payment per month until it sells, which can be a huge financial burden.

HELOC: A line of credit secured by the equity in your current home, a HELOC can be a short-term way to fund your down payment. Keep in mind that there are fees involved, and you might not be able to get a HELOC if your house is already on the market.

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What Are Some Situations To Avoid

Planning ahead and having a clear strategy when home buying and selling can help you to avoid these situations:

• Needing to sell your home quickly. Youve found a home you want to buy, but you need to sell your current property in a very tight timeframe. Putting in an offer on a new property with the condition that you need to sell your home first is common, however if you havent even started the process, or have only given yourself a short timeframe, theres a chance you wont be able to meet the condition and your offer may fall through.
• You havent spoken to your lender. Youll need a really clear idea of your finances and what you can borrow, before you make an offer. So its important to speak to your lender first.
• You dont have cash for upfront deposits. If youre buying a new property at auction, youll probably need to pay 10% of the purchase price immediately if you win the auction. Also, if you make an offer thats accepted, youll need a deposit typically 10-20%. Likewise, buying a home utilising a bridging loan might also require a 5-10% cash deposit. Make sure you have sufficient funds for this.

Find The Right Home Equity Financing For You

If youre interested in using your home equity to fund a renovation, pay for a wedding, or send your children to school, a HELOC or a home equity loan can both provide the cash you need. A HELOC often works best if you dont need money immediately or dont know exactly how much youll need. However, access to a hefty line of credit can result in a lot of new debt if youre not careful.

A home equity loan is often a better choice if you need a specific amount of money for a project or life event. Discover home equity loans provide a low fixed interest rate, no fees, and consistent monthly payments so you can budget accordingly.

$0 Application Fees.

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Can You Sell A House Before A Mortgage Is Paid Off

You can sell your house before paying off your mortgage. Most mortgage terms are 10 to 30 years. Nearly 20 percent of all homeowners have bought more than one home in their lifetime. They likely sold their current home and bought another one before paying off the mortgage. In other words, there is nothing unorthodox or strange about selling your house while you still owe the lender.

The question is why you are selling your house – or, more importantly, how you plan to sell your house. For instance, you may be trying to avoid bankruptcy or foreclosure. So, you need an alternative to a traditional house for selling your house and getting out of your mortgage. Fortunately, there is a quick way to sell your property before you pay off your mortgage.

How To Sell A Home With A Mortgage

To reduce stress and the likelihood of potential errors occurring its best to allow extra time, where possible, at every step.

Keep the discussion flowing with your conveyancer and broker to make sure everythings on track.

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Is It Ever A Bad Idea To Sell Your Home Before Its Paid Off

The timing of when to sell a home is really a personal decision and dependent on your circumstances and financial goals. However, keep in mind that if the value of your home wont cover your outstanding mortgage balance and selling expenses, youll need to bring separate funds to the sale to cover the difference.

Another thing to keep in mind: if you sell the home before owning it for a minimum of two years, youll likely have to pay capital gains tax if you make money from the sale.

• If youre selling less than a year after buying, youll have to pay a short-term capital gains tax on your gain from the sale, which is taxed as ordinary income according to your tax bracket.
• If youre selling more than a year after buying, but less than two years, your gain will be taxed at the lower long-term rate either 0%, 15%, or 20%, based on your capital gains tax bracket.

If youve owned and lived in the home for two of the past five years and havent excluded gain from the sale of a different main residence in the past two years the IRS allows you to exclude up to $250,000 of gain if single or married and filing separately, or up to $500,000 if married and filing jointly. We always recommend reaching out to a tax advisor to go over the details of your individual transaction.

Which Is The Right Move For You

The best option for you depends on a lot of factors. Youll want to think about your timeline, your financial situation, your local housing market, and more.

To help gauge the right route for your home sale, ask yourself these questions:

• What can I afford? Can you afford to manage two mortgage payments at the same time? Can you handle maintaining multiple properties, as well as the taxes and expenses that come with them? Know your budget, as well as what your expected costs might be in all three scenarios.
• How competitive is the market? If youre in a hot, in-demand market, it might be harder to find a home quickly. You may want to sell first to maximize your profits, and then delay your purchase until the market cools.
• Are there iBuyers available in my area? iBuyers are quickly expanding to markets across the country, but theyre not present everywhere just yet. See if were in your neighborhood.
• How quickly do I need to move? Are you working on a set timeline, or do you have more flexibility? If youve got a deadline, you may need to buy first in order to ensure you meet it.
• What condition is my home in? Is it move-in ready, or does it need lots of repairs and work? If its the latter, that will mean more expenses, a lower sales price and, most likely, a longer time on the market. You might consider selling to an iBuyer who will handle the dirty work on your behalf.

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Other Types Of Liens May Be On Your Home

Other types of liens may be on your property besides a mortgage lien.

• A mechanics lien is placed against a property when the owner fails to pay for repairs or improvements made to the property.
• An IRS tax lien is placed against a property when the owner owes back taxes to the government.
• A homeowners association lien is placed against a property when the owner fails to pay their HOA dues.

Estimate Your Net Proceeds

Now that youve collected a home value estimate and your mortgage payoff amount, use this simple home sale proceeds formula to estimate how much youll walk away with:

HomeLight also offers a handy Net Proceeds Calculator to help you better estimate the cost of selling your home and the net proceeds you could earn from the sale. In addition, your agent may prepare whats called a net sheet for you, which can help you account for any local fees and costs specific to your area.

You wont know the exact breakdown of credits and fees for the sale until you receive your estimated settlement statement at closing, but a ballpark calculation upfront can help you get a clearer vision of whether now is the right time to sell from a financial perspective.

Many sellers underestimate what it costs to sell a home which totals an average $31,000 not including the mortgage payoff, according to an analysis by HomeLight.

If the estimated margin between your home value and selling costs is slimmer than you realized, you can determine whether to move forward or wait a few years to build up more equity before selling.

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Some Things Which Might Come Up During Negotiations:

• completion date this is the date by which you must have vacated the property. This may be dictated by when your buyer must move out of their current home. Timings can vary but must be agreed by all parties in a chain. You may wish to consider letting people know in advance of any holidays you have booked.
• fixtures and fittings consider which things you definitely do and do not want to take with you to your new home, and on which things you can be more flexible. Make sure it is clear in the contract what you intend to leave behind either for free or at extra cost, as this must be agreed with the buyer. More information is available on the RICS website.
• survey if the buyers survey has uncovered significant issues they might ask you to pay to have them fixed renegotiate their offer to take into account the cost of the work or even withdraw their offer altogether.

Tips If Youre Selling First

In the event you do opt to sell your home first, there are a few steps you can take to ensure the process goes as smoothly as possible.

You can:

• Arrange temporary housing: Before you list your home, make sure you have a temporary place to live once the property sells. This could mean living with a friend or family member, or it might mean renting a hotel room for a few months while you look for a new house. Whichever option you choose, have a plan in place to make it happen.
• Know what youre looking for in a new house: Go ahead and start narrowing down your list of must-haves, and research potential neighborhoods and communities. As soon as youve accepted an offer on your existing house, you should start hunting for your new property right away to minimize your time in limbo.
• Be ready to buy: Have a mortgage lender in mind and get preapproved for your loan once you choose one. You should also set your budget, preferences, and timeline, so you can start viewing relevant properties as soon as your old house sells.
• Consider a lease-back: If the buyer of your old house isnt on a tight timeline, you may be able to negotiate a lease-back. This allows you to rent the property from the new owner for a certain amount of time while you look for a new home. You may need to make payments to the buyer in order to do this, or it might mean reducing the sales price or other concessions.

See our guide to selling your home fast

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Determine The Right Time To Sell

The right time to sell is a complicated question because everyones situation is different. Here are several factors to consider:

• Why are you moving? If you have to relocate for career reasons, you might want to move faster than if youre downsizing or looking to take advantage of a strong housing market.
• What kind of market is your home entering? Theres a big difference between a buyers vs. sellers market. If competition in your area is high and there are fewer homes available for buyers, you can set your home price higher than if it was the other way around. Its helpful to have your real estate agent do a comparative market analysis.
• Are you confident you can find another house? If youre looking for another house, you may find that its tougher in many markets than it has been in the past. The same conditions that make it a good time for you to sell can make it a difficult time to buy. Theres something to be said for not wanting to ever make two mortgage payments at once, but you also may not want to sell only to move into an apartment and pay for storage.

Cost Of Porting To A Cheaper House

Table notes: All figures are simplified for illustration purposes and do not include fees and other costs associated with buying and selling.

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Things To Think About

If youre thinking about selling your property, there are several things you will need to sort out and think about. These include:

• thinking about whether the money from selling the property will be enough to re-pay what you owe on the mortgage. If it isn’t, you’ll have to make up the difference
• thinking about how long it would take to sell the property and the costs involved, for example, estate agent’s and legal fees. Until the property is sold, you will still be responsible for the mortgage payments and your mortgage debt may go up
• thinking about what income youll have to live on after you sell. If youre not working and you get a lump sum from the sale of the property, this might affect whether you can get benefits or not.

If you are already claiming or think you might need to claim benefits, you should get advice before selling your property to pay off your mortgage debts. You can get advice from your local Citizens Advice Bureau. To search for details of your nearest CAB, including those that can give advice by email, click on nearest CAB.

What’s Your Home Worth

Request an instant home value estimate to for a ballpark estimation of how much equity you have before selling a house with a mortgage.

So thankfully, you are not stuck in a home until you pay off every last dollar. Here are the quick points to know on how to sell a house with a mortgage:

• Youll use the proceeds from the sale of your home to pay off your existing mortgage balance. Your lender will receive their payout at the time of closing.
• After satisfying the mortgage debt and covering the fees associated with selling a house such as commissions and taxes, you will have some profits to take home.
• If the amount received from the sale falls short of your outstanding mortgage balance and selling costs, you will have to cover the difference with funds other than those from the sale.
• In todays market where property values have seen steep increases, it isnt common for sellers to owe more than their home is worth, a situation thats known as being underwater.
• A mortgage is more likely to become underwater if a seller falls behind on mortgage payments, sells before theyve gained much equity, or sells during a market downturn.

If youre ready to sell your home, follow these steps to account for your existing mortgage in the process.

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