Can You Sell Your House Before Paying Off the Mortgage? February 7, 2019Home Buying, Home Selling
With the median U.S. home price just shy of $357,810, most homeowners are in some stage of paying off their mortgage, a home equity line of credit, or both. Since the average person moves a whopping 11 times in their lifetime, selling a home while still paying off its mortgage is a very common situation. Read on to learn how you can seamlessly sell your home and buy another one before you’ve paid off your mortgage.
What Happens To Your Mortgage When You Sell Your Home?
Unless you’re underwater on your home — meaning that you owe more on it than it’s worth — your home proceeds will likely be enough to pay off your outstanding mortgage. However, if you’re selling a house with a mortgage, you’ll need to make sure that your sale agreement (and any purchase agreement you sign for your next home) contains some specific language that will enable you to sell your home, pay off your mortgage, and buy a new home without running afoul of timing or lending guidelines.
Pro Tip: Check out our article about home sale contingency clauses to learn more about the details to look for in your sale agreement.
For example, a home that’s being sold with a mortgage will be sold “subject to” the mortgage, which means the lender essentially has first dibs on any sale proceeds. Once the mortgage has been paid off, and any real estate agent fees and closing costs are paid, the rest of the money is yours. For many, these proceeds will immediately be used as a down payment on your next home.
Why Timing is Critical
The last thing most sellers want is to sell their old home before they’ve found a new place to live. Moving into short-term housing, like an apartment, and paying to keep belongings in a storage unit is usually not the most efficient way to do things. Given a choice, most sellers will want to move straight from their old home into a new one.
How to Get Your Timing Right
To do this, you’ll need to put language into your sales agreement which specifies that your home sale will close only when you find a new home. This may require you (and your home buyer) to be under contract longer than usual, but this usually isn’t a problem. Quite often, your buyer will be in the same need-to-sell situation with their own home and will understand.
Pro Tip: Already found your perfect new home but need to shed your current one (and its mortgage) before you buy? Check out our article on how to sell your house fast.
Logistically, this can sometimes mean closing on the sale of your former home and the purchase of your new home on the same day. As long as sale proceeds are transferred in a timely manner and the bank can release its lien on your former home before you close on your next one, you should be in good shape.
When you’re making a purchase offer on a new home, make sure this offer includes language that the purchase is contingent on the sale (and closing) of your old home. This contingency makes sure that you won’t be on the hook for a new home (and mortgage) while your old home is still on the market.
Why Home Inspection Services Are Important
Another contingency that’s commonly included in purchase and sale agreements is a pre-purchase home inspection. The home inspection contingency gives the buyer the ability to back out of the transaction, even once they’ve agreed to buy a home for a certain price, if the pre-purchase home inspection reveals certain problems or issues which the seller refuses to correct.
Pro Tip: Home inspections are just as important for sellers as they are for buyers. Whether you’re trying to sell your house fast or increase your asking price, check out these benefits of a pre-listing home inspection for sellers.
A home inspection company will generally go through the entire house, looking for everything from structural issues to safety problems, such as:
Cracks in the foundation
Leaks in the roof
Doors that aren’t flush
Plumbing or electrical issues
A basement that’s taking on water
An oven that isn’t bolted to the wall
Outside stairs that lack a safety railing
Creating a professionally-backed report that outlines each of these issues can ensure that both the buyer and the seller are aware of potential problems which could impact the value and structural integrity of the home.
Home Inspections Can Protect Buyers
Most problems can be corrected at relatively little cost to the seller, making repair a no-brainer to facilitate the sale. Other problems can take a bit more time and expense, and some — like high radon levels or a carbon monoxide leak — must be corrected or included in the relevant buyer disclosures before you’re legally able to sell your home.
Since a home inspection is often the only way to reveal potential issues that could impact the property’s value, most mortgage companies will require buyers to get (and often pay out of pocket for) a pre-purchase home inspection before the loan is funded. If an inspection reveals serious issues and these issues are not corrected to the lender’s satisfaction, it may refuse to lend money for that specific home, stopping the sale process in its tracks.
Home Inspector The home selling process is tough enough on its own. That’s why it’s crucial to have a home inspector with plenty of experience. Only years of hands-on experience can give home inspectors a good feel for what local lenders will require and which repairs will generally need to be performed before a loan is funded. For both the home you’re selling and the home you’re planning to buy, having a thorough pre-purchase or pre-listing home inspection from a reputable and honest, yet realistic company is the best way to make sure no costly surprises are waiting in your future. At Dream Home Inspection LLC, we are known for our expert home inspection services, excellent customer service, and professional team. With over 22,000 home inspections and counting, we are proud to provide residents of Port Orange, South Daytona, Daytona Beach, Ormond Beach, Edgewater, New Smyrna Beach, DeLand, De Leon Springs, Deltona, DeBary, Orange City, and Oak Hill with inspection results they can trust.
If you need a pre-purchase or pre-listing home inspection or have any questions about our services, please fill out our contact form or give us a call!