In 2018, roughly 62% of American homeowners had a mortgage according to the U.S. Census Bureau. Mortgages make it possible for individuals to purchase homes without having all of the cash upfront.
If you are considering selling your home, there’s a good chance that you still have an outstanding balance on your mortgage. How does selling a house with a mortgage work? Is it possible?
Actually, selling a house with a mortgage is quite common. However, there’s a number of things you’ll want to understand about how this process works.
Let’s take a look at everything you need to know about selling your home when you still owe money towards the mortgage.
How Does a Mortgage Work?
For most Americans, a mortgage is the largest loan that they will ever take out. On top of that, it will also be the longest-term loan most Americans take out. This is a loan for what is probably the biggest asset you will ever own.
When you go to buy a house, there’s a good chance you don’t have all of the cash up front to make the purchase. This is where a mortgage comes in. You can apply for a mortgage from a lender in order to finance the purchase of your home.
When you successfully take out a mortgage on a home, you are promising to pay back the money you are borrowing with interest. The interest rate is agreed upon at the beginning of the loan.
This is what is called a secured loan. A secured loan is a loan that is backed by collateral. In the instance of a mortgage, your home is the collateral.
What this means is that the bank has the right to foreclose on your property if you don’t pay back your mortgage.
What Are the Different Types of Mortgages?
There are a number of different types of mortgages you can take out when you are financing the purchase of a home. These include:
- Conventional loans
- Jumbo loans
- Adjustable-rate mortgages
- Fixed-rate mortgages
- Government-insured loans
The most popular choice for homebuyers is the 30-year, fixed-rate conventional mortgage. However, if you are buying a more expensive home, you will likely take out a jumbo loan. Government-insured loans can be a good option for people who are having a difficult time qualifying for a conventional loan.
Fixed-rate mortgages and adjustable-rate mortgages refer to how interest is charged over the life of your loan. With the former, the interest rate remains fixed for the entirety of the loan. With the latter, the interest rate fluctuates based on market conditions.
Selling a House With a Mortgage: Is It Possible?
Yes, you can sell a home that has a balance on the residential mortgage. This is actually a very common occurrence. Most people sell their homes before they have paid off their entire mortgage.
The way that this works is that you can use your equity to pay off the balance of the loan when you sell your home. At this time, you will also pay any closing costs that you owe. You’ll want to look into any prepayment penalties that are associated with your mortgage before you list your home for sale.
Selling a house through traditional venues can be a time-consuming process. You can learn more about how to sell a house fast here.
What Are the Steps Involved When You Sell a House With a Home Mortgage?
It is important to understand that the ability to pay off the mortgage at the sale of the home is dependent on the property being valued at a higher price than the amount you still owe. Let’s take a look at the steps involved to help you understand the process.
The Mortgage Is Paid Off Through the Sale of the House
If you are selling a house with a mortgage, it is the first thing that will be paid off from the sale. This is because it occupies what is known as the primary or first lien position.
Any Additional Liens and Loans Are Paid Off
Once the mortgage balance has been covered, any other liens or loans associated with the home will be paid off. This includes things like home equity lines of credit and home equity loans. If there are other liens on the property, these will also be paid at this time.
Closing and Transaction Costs Are Covered
The next items that the proceeds of the sale go to are any transaction and closing costs. There are a number of costs associated with selling a house, including real estate agents, deed recording fees, attorney fees, and more.
The Remaining Funds Go to the Seller
Once all of these previously mentioned costs are paid off, the remaining money goes to the seller. Many Americans will take the proceeds from the sale to put down a down payment on a new home. If you already have another living situation worked out, you could also use this money towards lifestyle or financial goals as well as other expenses.
Is It Time for You to Sell Your Home?
When it’s time to sell your home, you often first think about the money you’ll be making rather than how much it will cost. However, there are unfortunately many pricey fees associated with selling a home through the traditional market. If you are interested in speeding up the home selling process and avoiding realtor commissions and closing costs, you might consider selling your home to a cash buyer.
At Wiregrass Home Buyers, we buy houses in any and all conditions, as-is. This means that you don’t have to worry about the time and expense of fixing up your house for sale. It also means you won’t have to pay any agent commissions, fees, or closing costs.
To learn more about how the process works and to get your fair cash offer, click here.