Your mortgage loan was likely taken out for 15 to 30 years, which is the average contract length. However, what happens if you want to move before your term is complete leaving you with a balance on your loan? Is it possible to buy a new home while you still owe money on your current mortgage?
While the average time in one home is only 11 years, selling a home with a mortgage is fairly common. If you have enough equity in your home, your sale will not be too difficult. There are certain steps that you should follow to ensure that your deal goes smoothly.
The key is to choose the right time to sell. If you can get a price on your home that is greater than what you owe on your mortgage, you can sell a house with a mortgage without a problem. Let’s take a look at the steps to selling your home with a mortgage.
Talk to Your Lender
The first step in selling your home with a mortgage is to get in contact with your lender. Talk to them about what the current payoff amount is for your home. They will give you a quote on your payout amount that will be valid for up to 30 days. This amount may be slightly different from the amount that you see on your monthly mortgage statement due to the compounded interest rates.
The second step is to take a close look at your mortgage documents and discuss any penalties or fees that may be applicable upon selling. There may be clauses in your documentation that account for fees for selling early. While prepayment penalties were more common in the past, depending on how many years you are into your mortgage, there may be an existing clause in place.
Set Your Price
It’s a good idea to work with a professional real estate agent when you are selling your home. A realtor knows the current market and can help you to list your home for the perfect amount. They know what comparable properties have sold for in your area and help you set a fair market listing price. Ideally, you want to list your home for an amount that covers what you owe on your current mortgage. You also want to be able to cover your taxes, closing costs, and real estate commissions. Any profit that remains after the sale is yours to keep and use towards purchasing a new home.
The quote that you get from your lender is called a settlement statement. This will help you to determine if now is the right time to sell. Together with your lender and realtor, you will be able to calculate your expenses, including your closing costs and commissions, against the value of your existing mortgage. If you are not going to make any money once your fees and mortgage are paid off, you may want to wait to sell your home.
When selling a home on which you have an existing mortgage, the amount of profit that you make will depend on the listing price that you choose. Follow these steps to sell your home with an existing mortgage successfully.