The Truth About Selling Your House Before Paying Off The Mortgage
What You Will Read In This Article
If you’re the average adult, Census statistics say that you will probably move about nine times. Job changes, growing families, or a change in economic status are just some of the reasons people move. And, chances are, when you go to sell your house, you are still paying on that 30-year or 15-year mortgage.
So, what should you do if that happens to you? Can you sell your house before paying off the mortgage?
Keep reading to find out.
Do You Want To Sell A Home And Save On Commissions?
Did you know that we can help you save a lot of money when selling your house? Money that you can put towards moving, buying a new house, paying off debt, a much needed vacation or anything else you want. ISoldMyHouse.com has 3 ways for you to sell your house and NOT pay high commissions.
- Sell It Yourself With Our Flat Fee MLS Listings
- Sell With Top Local Agents With Negotiated Discounts on Commissions
- Sell To A Pre-Qualified Cash Buyer
Steps To Selling Your House Before the Mortgage Is Paid Off
Selling your house before the mortgage is paid off takes some research and planning. The following five steps will help guide you through the process.
Step 1: Find Out How Much You Still Owe On Your Current Mortgage
If you’re wondering if you can sell your house before paying off the mortgage, the first step is looking at your mortgage. All plans need a starting point, and your starting point is knowing how much you still owe on your mortgage. The loan balance on your most recent statement is not your payoff amount. The remaining balance and the payoff amount may be different due to accrued interest.
You will need to contact your lender, either online or by phone, to determine the payoff amount of your mortgage. Be sure to find out how many days your quote is good for.
Step 2: Set a Target Sale Price
You probably have an emotional attachment to your house. But you can’t allow your emotions to interfere with the selling process. Before you can set your target price, there are some factors to consider.
First, you’ve probably heard several times “Location, location, location.” You need to look at your home’s location. A 3,000 square foot house located on a lake will be priced higher than a place situated in a rural area.
Second, what are comparable houses in the same zip code selling for? You will also want to look at homes nearby that are currently for sale and how long they have been on the market. If the house has been on the market for several months, it may be priced too high.
Third, what renovations have you made to the house and property? Small updates sometimes have big payoffs. Conversely, some large remodeling projects have no impact on the selling price.
Last, how old is your house, and what’s its condition? Some older places start to show their age. But, regular upkeep and maintenance can keep older homes in good condition.
Several online estimators can give you an approximate value of your home based on publicly available information. However, it’s best to contact a professional to do a pre-appraisal so your house can be priced to sell at a profit to you.
Step 3: Figure Out Your Selling & Closing Costs
After you set your target sale price, you will need to compute your selling and closing costs.
If you’re working with a realtor, you will need to calculate their commission, which is typically 5-6% of the selling price.
There are also various fees involved in the house selling process. Some of the expenses involved include inspections, title searches, property surveys, attorney’s fees, and taxes. These closing costs are usually about 1-2% of the selling price.
Step 4: Crunch The Numbers To Determine Your Home Sale Proceeds
You have contacted your lender for your mortgage payoff balance, you have researched various factors and have set your target sale price, and you have calculated your selling and closing costs. Now it’s time to crunch those numbers. Take your selling price and subtract the selling fees, the closing costs, and the mortgage payoff amount. The amount you have left is the proceeds from the sale of your house. That’s the money you will have to save, invest, or use as a down payment on a new home.
Step 5: Consider All Selling Options
You’ve done the research and crunched the numbers. Now it’s time to put your house on the market. But there are so many options, and you’re not sure what the difference is between a traditional real estate agent and a low commission real estate agent. And what about those advertisements you see about a company called “We Buy Houses”? Can’t you just stick a “For Sale” sign in the yard? All the different options can seem overwhelming.
Keep reading while we go through the pros and cons of each type so you can make the choice that is right for you.
Traditional Real Estate Agent
A traditional real estate agent will usually handle all the details involved in selling your home. Their services typically include marketing your home, conducting negotiations, reviewing documentation, and assisting with closing.
A real estate agent has access to multiple listings, so your house can potentially be seen by thousands of people. An agent also spends time hosting open houses and taking potential buyers on a house tour. Also, an agent will usually be able to get more for your home.
All the added features of using a traditional real estate agent comes at a price. An agent’s commission is usually about 5-6% of your sale price. A house that sells for $300,000 means that the agent will receive a commission of $15,000-$18,000.
Low Commission Real Estate Agent
Some agencies will sell your house at a lower commission rate, some will list as low as 1% or 2%. If they sell your home for $300,000, then they will earn a commission of $3,000-$6,000 (considerably less than $15,000-$18,000).
The upside of a lower selling cost for you comes with a downside as well. Discount real estate agents make their money by working in volume. They have many clients, so they have to work with a system that they know will work to sell your house efficiently.
We Negotiated Lower Realtor Fees For You
ISoldMyHouse.com has negotiated significantly lower commissions with some of the best real estate brokers so you don’t have to. We will match you with a top local agent in your area that will sell your house (without sacrificing service) for a much lower fee!
For Sale By Owner
You might decide that you don’t want to pay a commission to a real estate agent. After all, what can be easier than sticking a “For Sale” sign in your front yard and listing it in the classified section of your local paper? You will certainly save money with this approach, and if you have experience with all that’s involved with selling a house, it might be the right option for you.
The downfall with this approach is the time you will spend showing your house. Another con is the lack of marketing. It’s not easy to get your home in front of thousands of potential buyers. Unless someone is driving through your neighborhood, it’s unlikely that anyone will know that you’ve got a house you want to sell. This situation is especially a problem if you live in a rural area. We always recommend using a reputable for sale by owner website if you decide to take this approach.
Flat Fee MLS
If you still want to sell your house without a real estate agent’s assistance, you can try using a Flat Fee MLS (Multiple Listing Site). You pay a one-time fee to a licensed broker who specializes in this service, and they will list your house with their agency. This method will get your home before more possible buyers.
However, that’s the only service they provide. These brokers won’t help with any of the other aspects of selling a home. You will still handle all the details involving negotiations, contracts, and closing costs.
Sometimes, a situation requires that you sell your house quickly. You don’t have the time to go through the process of listing with an agent, having them show your home to potential buyers, and go through the closing process. If you find yourself in that type of situation, then iBuyers might be a good option.
iBuyers is the term for instant buyers, and the whole transaction is online. It’s convenient and fast. It usually takes less than two weeks to complete most transactions. iBuyers purchase your house “as is,” so you don’t have to worry about the time and expense involved in repairs and renovations.
There are two significant downsides to working with iBuyers. The first is that you will receive much less than the fair market price. Second, is that they charge a hefty transaction fee. You may be looking at 7-9% of the home’s selling price.
Additional Reading About iBuyers
We Buy Houses Companies
If you are looking to sell your house quickly, We Buy Houses companies may be another option that works similarly to iBuyers. Representatives from We Buy Houses or We Buy Ugly Houses companies will come to your home and assess your house. They’ll look at any needed repairs and renovations and the costs associated with those. These companies usually look to buy a place at a low price, flip it within a couple of months, and profit.
Like iBuyers, you will be selling your house at a price that is way below fair market value. You also want to do your research. Many of these companies are legit; however, there are some con artists that will try to take advantage of you.
Additional Reading About We Buy Houses
Timing Your Final Mortgage Payment Correctly
Discuss your monthly mortgage payments and your final mortgage payment with your lender. If you have an automatic payment schedule, you will want to cancel that. But, you may need to make your monthly payment while waiting for closing on your house. You don’t want to miss a payment, or you may incur a late fee or penalty.
Who Has To Make the Mortgage Payment While Your House Is Selling?
You are responsible for all mortgage payments until the day you close on the house. The closing process usually takes 30-45 days. Once the sale is complete, the title company will issue a check to your lender.Learn how to sell a house and save thousands with ISoldMyHouse.com.
Can You Carry Two Mortgages At The Same Time?
Before you make an offer on your new house, you need to check with the lender in that area about taking out a new mortgage while still paying on the old one. Some people who have good incomes, steady jobs, and excellent credit scores may be able to handle two mortgages simultaneously.
For most people, depending on the location, your lender will make your new mortgage contingent on the sale of your old home. That means you can’t get the money to buy your new home until you sell your old one.
If that’s your situation, there are some options.
If you’re looking for a short term solution, you can take out a Bridge Loan. This loan will “bridge” the gap to make a down payment on your new home while still paying the mortgage on your old one.
A potential downside is that you might find yourself paying two mortgages, possibly longer than expected, if it takes a long time for your old house to sell. In addition to the two mortgages, you will also be responsible for paying the interest on the bridge loan, usually at a higher interest rate.
There may be times that it is beneficial to both parties to assume the seller’s mortgage. It does require the approval of the lender and is usually only available for USDA, FHA, and VA loans. An assumable mortgage typically isn’t available for conventional loans.
One possible snag a seller might run into is not receiving a release of liability for their mortgage. This issue can cause problems if they try to apply for another mortgage.
How To Minimize Overlap When Selling and Buying
You don’t want to be carrying two mortgages simultaneously, so you want very little time to elapse between selling your old house and purchasing a new one. Here are some tips to minimize the overlap between buying and selling.
- Sell your house first. Pay off your old mortgage then use the net proceeds to make a down payment on your new home.
- Schedule a concurrent closing. This situation takes a lot of planning and working with your lender. A concurrent closing occurs when you close on your current home, and then, within a few days, you close on your new home.
- Find a cash buyer. You will usually be able to close and pay off your old mortgage quickly. However, most likely, you will receive less than market value.
How To Sell A Home That’s Worth Less Than You Owe
You might find yourself in a situation where your mortgage is underwater. That’s when the principal amount of your mortgage is more than the value of your house. The value of your home may have decreased since you purchased it. If you try and sell it, you may not have enough to pay off your mortgage.
If you find yourself trying to sell a house that’s worth less than you owe, you may want to consider the following:
Wait Out the Market
If you’re not in a hurry to sell, wait, and see if the housing market changes. If you do need to relocate, consider renting out your house. The rent payments will help to pay the mortgage until market conditions change. Delaying the sale of your home also gives you the opportunity to continue paying down your mortgage and helping to close the gap between the mortgage balance and the home’s value.
Pay Money Out Of Pocket
If you have the available funds, you can pay cash to make up the difference between your selling price and your mortgage payoff amount. You need to be careful, though. You don’t want to use up all your extra cash and find yourself without an emergency fund.
Consider A Short Sale
If you don’t have extra funds and you are unable to wait for the housing market to change, you can discuss the possibility of a short sale. In a short sale, the lender agrees to lower the mortgage’s balance to help sell the house.
A short sale should probably be considered as a last alternative. A short sale will harm your credit score. It’s regarded as a debt that wasn’t fully repaid. It will hurt your credit score and possibly prevent you from getting another mortgage.
Many times we purchase our dream home with visions of building happy memories for years to come. Sometimes life events change our plans, and we need to sell our dream home. You might be in one of those life-changing events and looking to sell your home before you have paid off the mortgage.
You can sell your house before paying off the mortgage. These guidelines will help you through the process. However, it should not take the place of a knowledgable professional. You should work with your lender to ensure a smooth process. They can inform you of any fees associated with paying off your mortgage early and discuss the necessary details.
About the Author: Kris Lippi is the owner of ISoldMyHouse.com, the broker of Get LISTED Realty and an official member of the Forbes Real Estate Council. He actively writes about real estate related topics such as buying and selling homes, how-to guides for around the house and home product recommendations. He has been featured in Inman, Readers Digest, Fox News, American Express, Fit Small Business, Policy Genius, Lending Tree, GoDaddy, Manta as well as other major websites. Read more about us here.