Did you know that 62% of homeowners have lived in their house for a decade before selling? A further 25% have stayed put for more than 20 years. Despite this, few have paid off their mortgage in full before selling.
According to experts, mortgage rates are currently increasing, but they are still at historically low levels, so this might be the ideal time to sell. However, do you know the ramifications of selling your house with an existing mortgage?
Can you sell a house with an existing mortgage?
You can sell a house with a mortgage. The main concern is that the sale price of your home should be high enough to pay off the remainder of your mortgage to the relevant lending institution. Ideally, you should also have enough left over to put a significant down payment on your next home.
How much do I need to pay off the mortgage?
It isn’t always possible to sell a house at the opportune time for maximum profit. In fact, sometimes homeowners find themselves in negative equity, which can be a daunting financial situation. Negative equity is when the market price of your home is less than the amount owing on the mortgage or lien.
Before you sell your home, it is best to speak to your lender. They can calculate the required minimum sale price for your home to fulfill your obligations to pay back your mortgage. Keep in mind that taxes, interest, realtor fees, and other associated costs will also need to be factored into the sale price; therefore, the sale amount cannot be considered on its own.
What happens if my mortgage is higher than the sale price of my home?
When you buy high and need to sell low, you might find yourself in a situation where your mortgage is higher than the sale price. This is known as having an underwater mortgage.
There are numerous grounds for a house losing value and being worth less than the mortgaged amount, with market fluctuations and major repairs being the most common. Though far from ideal, it may still be possible to sell your house if your lender agrees to a short sale or a property buyer swoops in with an offer. Alternatively, you may be required to add in additional money after your home sale to make up the difference owing on your mortgage.
Can I buy another house before I sell if I have a mortgage?
Undoubtedly, it is easier to get financing on your next house if your first home is sold. However, often homeowners want to buy their next home before completing the sale on their current one. Depending on your income, credit rating, and current equity, you may be able to obtain one of the following:
· Piggyback mortgage
· Home equity loan or HELOC
· Bridging loan
· Contingency sale
Selling a home is rarely a spur-of-the-moment decision. Instead, the energy and momentum needed to contemplate packing, cleaning, showing, and negotiating are typically nudged by a significant life milestone like pregnancy or a new job. In fact, most homeowners contemplate the decision of selling their house for a few months on average before they put up a ‘for sale’ sign. As such, we highly recommend speaking to your mortgage lender or a broker to check your options.