What Happens to My Mortgage When I Sell My House?
Nowadays, it is uncommon for homeowners to stay in their house until they’ve paid off the mortgage. This situation leaves many sellers wondering what happens if they sell their home while they still owe money.
A Traditional Sale
In most cases, you should be able to sell your home for a larger amount than what you still owe on your mortgage. If you’ve been steadily paying your mortgage over the years, you will have built up equity on your home, and you can cash that in when you sell.
When a home is closed upon, the buyer comes to a settlement between the down payment and the mortgage loan, which equals the home’s selling price. That amount is then used to pay off:
- What’s left on the mortgage
- Leftover home equity lines of credit (HELOCs)
- Closing costs, such as taxes and agent commissions
If there’s money left over after you have paid off these expenses, you will receive that amount as a profit, which you can spend however you see fit. Many sellers choose to put this profit towards a down payment on a new house.
A Short Sale
A short sale occurs when a home is sold for less than the debt still owed on the property. In this case, you need to confer with your mortgage company and ask them to accept a loss.
The selling process works somewhat differently in a short sale since the mortgage company will be receiving less than they are owed. Before accepting an offer, you have to get the go-ahead from your lender, which can slow down the selling process.
When You Buy and Sell at the Same Time
When you sell first:
Selling first is the simpler choice between the two. In this case, you can use the payout you receive from selling your home to make the down payment on your new one.
When you buy first:
This scenario is a bit trickier. You won’t have the funds from a sale to put towards your new house, so you’ll have to choose one of the following options for financing:
- A home sale contingency: This contingency states that you need to find a buyer for your old home before settling on the new one. If you can’t find a buyer, you will be allowed to exit the contract.
- A bridge loan: A short-term loan that you can use to pay off your old mortgage and put towards the down payment on your new home. You can pay off the bridge loan when you sell your old home.
- Handle two mortgages: It’s not very tempting, but the simplest option is to handle two mortgages until you can find a buyer for your old home.
Understanding the ins and outs of your mortgage during the process of buying and selling homes can be tricky. Reach out to us at Pinetree Financial if you have further questions.