Many individuals who are retired and wish to stay in their homes without selling often choose a mortgage. This approach enables homeowners to access their equity without having to relocate. However what occurs if you decide to sell a home that has a mortgage? Whether you are someone who has a mortgage, on your property assisting a family member in selling a home with a reverse mortgage or have inherited such a property it’s important to be aware of the following information.
Understanding the concept of a mortgage
The majority of mortgages fall under the category of Home Equity Conversion Mortgages (HECM) which are regulated and insured by both the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).
- To qualify for an HECM reverse mortgage you must meet the criteria;
- Be least 62 years old.
- Reside in the property, as your primary residence.
- Fully own the home. Have only a small remaining mortgage balance.
While FHA and HUD oversight have reduced predatory practices associated with mortgages it is still essential to note that they do exist. This article will primarily focus on FHA and HUD backed mortgages; therefore if you possess managed ones this information may not be applicable.Understanding the workings of a mortgage
A mortgage provides homeowners with the opportunity to convert their homes equity into a lien allowing them to receive monthly payments. Unlike a mortgage, where homeowners accumulate equity, with each payment holders of mortgages experience a decrease in equity every month due to the payments they receive.
Can you sell your house if you have a mortgage?
Absolutely! It is completely legal for homeowners with a mortgage to sell their homes whenever they deem fit. Like with a mortgage you still retain ownership of the property while the lender holds a lien. When you sell your house you settle any balance with the lender during closing. Can keep any remaining equity.
If you plan on selling your home with a mortgage it’s essential to ensure that your homes equity is sufficient to cover both your loan payoff balance and any associated closing costs.
How does selling a home with a mortgage differ from selling methods?
While the overall process is quite similar there are some distinctions when it comes to selling a home that has been financed through a mortgage.Reversing trends, in equity; With mortgages monthly payments contribute towards gaining equity over time. However in the case of mortgages this trend is reversed as homeowners receive payments instead.
When you have a mortgage each month you receive payment. Also lose equity and increase your debt. This can reduce the amount of money you’ll receive when you sell the home.
Reverse mortgages are often referred to as recourse loans because they are backed by the federal government. This means that neither you nor your heir will owe more, than the value of the home. Basically you won’t end up owing more than what your home’s worth if it has a mortgage (though this may not apply if your reverse mortgage is not FHA or HUD backed).
When selling a mortgage you work with the lender to determine a timeframe for selling and agree on a sale price. We’ll discuss this in detail later.
Events that indicate the need to pay off a mortgage;
1. Opting to sell your home.
2. Death of the homeowner.
3. Illness requiring a move, to living or a nursing home.
4. Unpaid property. Hoa fees.
5. Home in need of repairs.
Here are the steps for selling a house with a mortgage, which closely resemble those for selling a home with a mortgage;
1. Contact your mortgage lender; The first thing you should do is get in touch with your lender and request an estimate for paying off the loan. This estimate will outline the amount you will owe at closing including any fees. The payoff amount includes the borrowed principal, any accrued interest. Prorated charges up until the closing date.
Follow these steps;
Notify your lender within 30 days of experiencing one of the maturity events mentioned earlier. The lender will verify this event.
Subsequently the lender will send a letter stating that payment is due and payable either, to the homeowner or their heir.
Make sure to reply to the lender within 30 days of receiving their letter informing them about your plan to sell the home. The lender will arrange for an appraiser to evaluate the propertys value. When you sell the home you will be responsible, for repaying the debt of the mortgage or 95% of the appraised value if the debt is higher than that. The remaining 5% is covered by insurance.
Next it’s important to determine a listing price. Start by considering the amount you owe on your mortgage balance as stated in your payable letter. Don’t forget to include closing costs in your calculations. If you’re also aiming to make a profit from selling take into account market conditions and recent sales prices of homes in your area.
Step 4; List and sell
Whether you decide to sell by yourself or with the assistance of an agent. Listing a home with a mortgage for sale is like listing any other home. It involves writing descriptions for listings creating photographs and preparing for open houses and showings. All these activities are essential, in finding buyers.
Step 5; Closing and transferring funds
During the closing process title company will directly send the loan payoff amount to your mortgage lender. Make sure to review your closing statement to ensure that all payments have been made in full.
The remaining funds (excluding closing costs) should be transferred to you.
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