What Happens To Your Mortgage When You Sell Your House
November 22, 2022
There are two potential scenarios when selling your house: your mortgage will be paid off, or you’ll have a remaining mortgage balance on the property. It’s simplest to sell your house after you have paid off your mortgage so you don’t have to worry about a remaining balance. However, many people sell with a mortgage still attached to the property. In this case, the selling process is more complicated and you’ll have to factor in the remaining mortgage balance into the sale. In this blog post, we go through what happens to your mortgage when you sell your house.
When You Sell A House Where Does The Money Go
After buying a house, the homeowners make monthly mortgage payments that reduce the homeowner’s debt while their ownership stake or equity in the property increases. Eventually, they may decide to sell, but although they have put a dent in the mortgage balance, there is still a lot of money left to be paid. So where does this money go?
Traditionally, in a home sale, the house is sold for more than the remaining mortgage balance. In other words, the homeowner sells their house for more than they currently owe on the house. For example, if a homeowner bought the house for $400,000 and paid off $100,000 of the mortgage, the remaining mortgage balance would be $300,000.
At closing, the buyer transfers the funds for the house over to the seller and the seller uses those funds to pay off the remaining balance on their mortgage. If there was $300,000 left on the mortgage and the seller sold their house for $400,000, then they should get $100,000 after paying off their original mortgage.
Sellers use the remaining money, the $100,000 in this case, to pay for the closing costs and any other fees associated with the home sale. If there is money left over, the seller gets to have it as profit and many put it towards their next home purchase. Home sellers should aim to sell their homes for more than their current remaining mortgage balance and ideally more than they initially bought the house for to make a profit.
How To Figure Out What Your Remaining Mortgage Balance Is
Your payoff amount is the most accurate estimate of how much you owe on your mortgage. It’s different from your remaining mortgage balance because it includes both your remaining loan balance and accrued interest. Homeowners can request their payoff amount from their lender by phone call or website.
Buying and Selling a House at the Same Time
When homeowners often sell their house they also plan to buy another house either at the same time or afterward. Buying and selling a house at the same time can be complicated because it can be difficult to manage your mortgage with two properties.
Though it may be a hassle, some prefer to buy their new house before selling their old one so that they only have to move once. Unfortunately, this process means you won’t have the money from your home sale for things like the down payment and closing costs on your new property. You may need to pursue alternative financing options like getting a bridge loan to fund the purchase of your new home.
Selling your house first is the simplest way to buy and sell a house at the same time because you won’t have to worry about having two mortgages. You’ll have the funds from selling your house to pay the down payment and closing costs for your next house. However, it is likely that you will have to move twice when you sell first. You’ll need a place to stay as you wait to buy your new house and you may have to temporarily move into a rental or even live with family or friends.
What Happens in a Short Sale
A short sale is when a bank agrees to allow your house to be sold for less than the remaining mortgage balance. In this case, the homeowner still owes money on their mortgage but the proceeds from selling the house are not enough to pay off your mortgage otherwise known as negative equity. Short sales can damage your credit score and ability to buy a house in the future.
Work With a Negotiator When Selling Your House
Finding a real estate agent to work with is easy but finding a good real estate agent can be very difficult. Luckily, there is a new type of real estate agent organization that streamlines your search for a high-quality and experienced agent. This group of agents is called the Negotiators.
Negotiators are handpicked from amongst the top real estate agents in the country that have all proven their ability to go above and beyond for their clients. By hiring a Negotiator, you’ll have someone on your side who has a wealth of experience in the real estate market and an unrivaled work ethic working to get you the best deal possible.