Home sellers have plenty of things to do before their home is sold. Their property needs to be listed and marketed. The owners will usually clean their home and make it presentable for open house showings. They usually start packing and research other places to live while their house is on the market.
Some homeowners may still have a balance left on their mortgage when their home is sold. This can happen for various reasons. There are advantages and disadvantages to this circumstance, which can vary according to the situation.
Selling a house in Texas will take time. There are several steps that need to be taken, which can result in the transaction not being completed until several weeks or months have passed.
Sellers should still be able to sell their homes in most instances. Having a reasonable asking price, determination and an effective marketing plan can help them succeed.
Here are a few things to know about what happens to a mortgage when a house is sold.
Mortgages are a loan for a specific dollar amount. Most borrowers usually make a significant down payment and then make monthly payments towards the balance of that loan. Interest is built into the loan.
More of a borrower’s initial loan payments will go towards interest. Later payments will primarily be applied to the loan principal. Interest is only paid during the months that mortgage payments are made. No additional interest is charged after the home has been sold.
Some or all of the proceeds from a home sale are usually used to pay remaining mortgage balances. Sellers who didn’t make enough from the sale to pay off that loan completely will typically continue to make payments to their lender. Payments are made until the mortgage loan has been paid in full.
If you know that you’re going to sell your house before the mortgage has been paid in full, there are a few actions you can take:
1. Get the payoff amount for your loan.
One of the first things that you should do is to ask for the loan’s payoff amount. This will tell you how much is left on your loan’s balance. You can use this information when establishing an asking price for your home.
Setting a sale price that’s more than the remaining loan balance allows you to pay off the loan and still have some money left over once the sale has been completed.
Make sure to read your loan contract carefully. Some mortgage loans have prepayment penalties or other fees for paying off the loan early. If you have concerns or questions about this matter, discuss them with your lender.
2. Examine your options.
Selling your home in a buyer’s market may complicate things. Your home could remain on the market for longer than anticipated. This could cause you to lower your asking price, which might not be enough to pay the balance left on your mortgage.
If this happens, you can think about other options. You may opt for a short sale. A short sale would allow you to sell your home for less than your remaining mortgage balance. This could be a good option if you need to move soon, but it would also mean that you’ll have to come up with more out-of-pocket funds to pay off the mortgage in full.
You could also refinance your existing mortgage loan. Your lender may be willing to modify your current loan agreement. Just keep in mind that this could result in paying more money over time or additional interest and other applicable charges.
Another option is to take out a bridge loan. Bridge loans are short-term loans for the purchase of a new home while you’re waiting for your current home to sell. This is usually a temporary solution. It can be viable if you’re in need of financing when you have another home that you’re interested in buying, but it can also be expensive.
3. Ensure that you have a clear title.
Once you’ve talked to your lender, they may refer a title or escrow agent to you. You can also search for them yourself. A title search is conducted in most home sale transactions. This is done to ensure that you are the legal owner of the property.
The escrow or title agent will search for the proper title documentation. If everything is fine and there are no other legal claims against the property, you can relax. The agent can then be supplied with your bank account number and the payoff total for your mortgage loan.
4. Continue with the home sale.
You can still accept a reasonable offer on your home, regardless of if the amount is more or less than the amount needed to pay off your mortgage. A purchase agreement will be drawn up for both parties to review. Any appropriate clauses or disclaimers can be added to the agreement before the document has been signed.
A home appraisal and home inspection should be scheduled. Both the home seller and home buyer should be present for the home inspection. If the inspector reveals any significant items in need of renovation or repair, the seller can work with the buyer to determine who will be responsible for those costs.
A final walkthrough will be completed by the buyer and their realtor before closing. All final documents will be signed and recorded at that time. The seller will receive their payment for the sale proceeds, and the buyer will receive the keys to their new home.
You can always talk to your lender or real estate agent if you have questions or concerns. They should be able to work with you to find ways that you can affordably pay off your mortgage balance after the home sale transaction has been completed. Take as much time as necessary to review all alternatives before making a decision.
Home sales can be stressful, but they don’t have to be. Keep a positive outlook and an open mind. The home sale should be completed before you know it. It won’t be long until you can put that event behind you and start looking forward to the next phase of life.