When you sell your house, you have to determine the fate of any mortgages or home equity loans that may exist on the property. It is important to understand that these old home loans can be exercised in several different ways throughout the sale process. In reality, there are several ways to handle existing mortgages when selling a home, and in this article, we will look at the most typical situations and discuss how they affect both the buyer and the seller.
Paying Off the Loan
Of course, one avenue is to avoid having any balance on your mortgage or home equity loan before you decide to sell your house. This makes you start the selling process with a clean book and thus has a positive influence. As the seller, you would be expected to apply the money realized from the sale towards the balance of the loan. This may necessitate future planning to set for the balance from the sale and pay off the outstanding balance on the loan.
The advantage is that the buyers will have the comfort of knowing that there are no outstanding loans on the property. This makes for the simpler sale process without having to arrange the loan transfers or approvals. However, paying off the loan also means you lose any tax benefits you may have had from deducting mortgage interest and property taxes previously.
Transferring the Loan
Another approach is to sell the existing mortgage or home equity loan to the new buyers of the property. This process is quite common and is referred to as loan assumption. The buyers are also responsible for making the monthly payments on the loan they are being bought.
Any given conventional loan can be taken over by a qualified buyer if the holder agrees to pass it over to the new owner. The buyers will have to apply for a loan to assume the mortgage and undergo several financial qualification processes such as income and credit score. This option does not involve paying off the loan to the extent of being the seller. However, all risk for sustaining payments in the future is with the buyer.
The catch is that not all loans can be assumed and this makes it difficult for the acquiring company to manage the newly acquired loan. FHA loans and VA loans usually cannot be conveyed to new buyers because of restrictions. It also depends on case by case because most lenders have changed their rules on assumptions after the housing crash. By being the seller, you would be making the payments up to the time the sale is complete and the loan is taken over by the buyer.
Getting Partial Payoffs
What if you can’t afford to pay off all the mortgage but also don’t wish to take it to the buyer? Sometimes, you may be in a position to receive a partial amount in the same process of selling your asset.
Also known as partial mortgage satisfaction this is the act of paying down some of the mortgage loan balance during sale. This may assist you in reducing some of your existing monthly payments. Or pay off second liens or home equity lines more rapidly.
Lenders are not closed to partial mortgage pay so long as some conditions are met. This usually implies maintaining a credit history and making payments of at least twelve months. They also require one to have sufficient equity established to afford to pay off a percentage, as small as 20-30 percent of the loan. There may also be fees and penalties for early repayment, so it is worth finding out more from the lender.
The rest of the mortgage goes to the new buyer, as it is with any usual assumption of mortgage. In this type, as the seller, you receive a portion of the loan while the buyers repay the remaining amount. This assists in the transition phase.
Going delinquent
Another risky action is ceasing payments or deliberately failing to pay mortgages with the aim of reselling. This hurts your credit terribly and means you still have to pay the full amount owing on the card. Despite having a pending sale, you require the lender’s approval and then use the proceeds to clear the amount in arrears before completing the sale.
Allowing loans to go delinquent poses a danger to the sale taking place in the first place. The buyers are free to back out if they feel uneasy about acquiring a property with distressed, defaulted financing. Do not jeopardize negotiating leverage or come close to a sale with missed mortgage payments.
Consulting a Housing Counselor
How to choose the strategy for existing mortgages? To be able to speak with a housing counselor provides impartial advice. They assist you in evaluating all choices given your loans, home value, equity and financial situation.
Housing counselors are qualified experts recognized by HUD to answer homeownership questions. The services assist the users to weigh the benefits, drawbacks and other aspects arising from mortgage decisions when selling. Counseling is often either offered on a sliding fee scale or for a nominal fee.
Old home loans can be managed in several ways when one wants to sell his/her property. The fact is that before putting a home up for sale, one must be aware of what sort of mortgages or equity loans are out there and how they are dealt with. This makes it easier to communicate to the potential buyers. And it provides clear signals to transfer or repay loans with the assistance of sale proceeds. However, with the correct strategy, you can deal with existing mortgages and start afresh without any hitches.
