Your regular mortgage will require ten to thirty years to run its projected course. The average person hardly stays in one place for this long, meaning a good number will move before paying their mortgage in full.
A good majority of mortgagors also can’t afford to take up a new mortgage while still servicing another one. They should be able to sell their current home to allow them to take up another mortgage in their new location. This begs the question of whether you can sell the house before paying off the mortgage
Can I sell my house fast for cash? Yes, you can sell your house fast for cash before paying off your mortgage. You can look for a cash home buying company. In this article, we shall look at the process and how it affects you so that you can make the right decisions when the time comes.
At the end of the sale, you should have balanced or gained equity, but it is very easy to lose if you are not careful.
You should know that the lender must record a reconveyance against the property to release their lien over it before the title can be transferred to the buyer’s name. This means they must be involved in the closing process, and it is impossible to conclude the transaction without their knowledge.
They are also the ones who will provide the total payoff amount that they require to close the mortgage account. This payoff amount includes interest accumulation and all other charges and commissions. If you don’t know the exact amount required, there may be challenges with conveyance after the home sale is closed.
The mortgage is paid off using proceeds from the sale. Anything left over goes to offset the closing costs and, if there is still a surplus, to the previous homeowner—the one who is selling the house. It can make a decent deposit on your next house if you are lucky.
The amount you receive at the end of the transaction is equal to the selling price, less the outstanding home loan amount, which includes interest and other costs captured in the agreement and the costs of closing the sale.
Go through the fine print of the mortgage agreement to check for any penalties associated with early mortgage repayment and factor them into your calculations.
There are instances where there will be nothing left over from the home sale. Other times you even need to bring extra money from other sources to the closing table to have sufficient funds to close the current mortgage account.
Most mortgage loan agreements have a ‘due-on-sale’ clause which makes the home loan balance due as soon as the house is sold. In an ideal situation, this condition takes care of itself because the proceeds from the home sale are usually sufficient to cover the remaining loan balance.
This position comes naturally because the lender will not lend more than the appraised value. A number of them cap their lending at eighty to ninety-five percent of the appraised value to ensure the associated costs are also covered within the property value.
Also, keep in mind that by the time you are selling the house, you will have already made payments that reduce your overall obligation further.
Tip: Avoid moving into a house whose mortgage is higher than the equity you had gained in your previous mortgage as far as you can. You will be moving backward financially, and your budget will take a hit.
The ideal selling price should cover your equity in the house, pay off what is left of the mortgage—including interest and charges—and take care of the closing costs like real estate agent and attorney fees, transfer fees, staging and marketing costs, and any taxes.
It is easy to get matching offers in a seller’s market because there will be competing offers to choose from. You might even get higher offers and make a neat profit from the sale after the remaining loan balance has been paid.
It is a bit more difficult in a buyer’s market as the demand for housing is much lower. The few prospective cash buyer will ask for huge discounts because they are either broke or investors who want to take advantage of the situation.
The most reliable indicator of a reasonable selling price is the market. You can base your pricing on similar houses in the current market, which indicates what a potential cash home buyer is willing to pay. You don’t want your listing to stay on the market for too long because of wrong pricing. This will make it even less desirable.
There are special circumstances where the house sale alone will not be sufficient to cover the existing mortgage loan. In real estate terms, the house is then said to be underwater, meaning its market value is less than the outstanding mortgage loan balance.
If you want to sell your house for cash in this state it is not advisable; it will trigger the ‘due-on-sale’ requirement. You will be forced to pay the bank out of pocket to cover whatever is still outstanding after the sale proceeds have been applied to prevent a short sale.
For the sale to be financially sound, you are better off continuing with the monthly payment until you break even or beyond.
Unfortunately, the luxury of postponing the sale is not always available. Circumstances push homeowners into selling prematurely, and you will not be the first if you are in this position. It could be a need to relocate urgently or that you cannot keep up with the expected monthly repayments for one reason or another.
When the bank approves a short sale, they allow the house to be sold at a price less than the outstanding loan amount to mitigate further loss by both parties. They will then write off the outstanding debt as bad or give you a chance to pay it off gradually.
If the lender writes off the balance of a short sale, it is technically considered a loss to them and a profit to you as the home seller. You might be forced to pay income tax on this earning. They report it this way, and it lingers on your credit report for some time.
Although it’s not as bad as a foreclosure, it will still restrict your access to credit. You can avoid this kind of report by offering to pay the difference over time.
You should negotiate with the lender to draft a repayment plan for the outstanding amount. You can spread the expected monthly contributions over a longer period so that they are manageable alongside your other monthly expenses.
Considering your demonstration of good faith and faced with the alternative of declaring it a loss, the lender will be inclined to accept this offer, especially if your credit history is favorable. You want to maintain this positive report in case you need financing in the near future.
Allowing the bank to foreclose on your property should be the last option after everything else fails. The record will stay on your credit score for a long time, preventing you from accessing credit facilities. It is also a loss to the bank as much as it is a loss to you.
Unfortunately, sometimes it is too late to stop a foreclosure. The circumstances can be so deplorable that even short sales do not make sense.
The homeowner will have demonstrated beyond question that they cannot pay the mortgage, even with adjustments in the repayment plan.
This often couples with an extremely negative equity position where the outstanding loan amount is much higher than the house’s market value.
It may be the result of a drastic fall in housing demand or because the house is in a glaring state of disrepair.
Foreclosure is considered a better option in such cases than racking up interest and penalties that will not be paid at the end of the day.
USEFUL RESOURCES:
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