Selling a home with an existing mortgage involves several crucial steps. My easy-to-understand guide will walk you through the entire process.
In my article, you will learn the following information:
- Steps to sell a house with a mortgage
- Managing equity and dealing with negative equity
- Legal and tax considerations for home sellers
From almost forty years of experience as a Massachusetts REALTOR®, I see most homeowners have a home loan that must be paid off. Selling a house with a mortgage is commonplace. Maximum Real Estate Exposure does an excellent job of explaining the process helpfully.
Let’s get started on everything you should know.
Steps to sell a house with a mortgage
1. Obtain a payoff quote
I recommend contacting your lender for a payoff quote, including the remaining balance and fees.
Why it’s important:
- Ensures you know how much you owe.
- It helps you calculate your net proceeds from the sale. It will be far more accurate than estimating on your own.
2. List and market your home
Work with your agent to list your home on multiple platforms. Effective marketing attracts more potential buyers.
Marketing strategies:
- Professional photos: High-quality images make your listing stand out. I don’t recommend accepting anything other than professional photography from your agent.
- Online listings: Use real estate websites and social media.
3. Accept an offer and open escrow
Once you accept an offer, the buyer will open an escrow account. This account holds funds while the sale is finalized. The listing real estate firm typically holds the earnest money.
Key actions:
- Review offers: Consider all terms, not just the price.
- Negotiate: Work with your agent to negotiate favorable terms.
4. Home inspection and appraisal
The buyer will likely schedule a home inspection and appraisal. Be prepared for any issues that might arise.
What to expect:
- Inspection report: Address any repair requests from the buyer.
- Appraisal: Ensures the home’s value matches the sale price.
5. Closing the sale
At closing, you will sign documents to transfer ownership to the buyer. The escrow company or the lender’s real estate attorney will pay off your mortgage.
Steps at closing:
- Sign documents: Complete all necessary paperwork.
- Pay off mortgage: The escrow company will use sale proceeds to pay your lender.
- Transfer ownership: The buyer takes possession of the home.
Managing equity and negative equity
Positive equity
If your home sells for more than the mortgage balance, you have positive equity, which becomes your profit.
Using equity:
- Down payment: Use the proceeds for a down payment on your next home.
- Savings: Add to your savings or investments.
- Debt repayment: Pay off other debts.
Negative equity
You have negative equity if your home sells for less than the mortgage balance. You might need to bring funds to closing.
Handling negative equity:
- Short sale: Negotiate with your lender to accept less than the owed amount. Short sales were in vogue during the last market downturn, from 2007 to 2011, but they are far less common today.
- Covering the gap: Use savings or a personal loan to cover the shortfall.
Additional costs when selling a home
Selling a home involves various costs that can impact your net proceeds.
Common costs:
- Real Estate agent commissions: Typically 5-6% of the sale price.
- Closing costs: Fees for escrow, title insurance, and other services.
- Repairs and improvements: Costs to fix any issues discovered during inspection.
Legal and tax considerations
Legal considerations
Ensure all legal aspects of the sale are covered to avoid future disputes.
Key legal steps:
- Clear Title: Verify there are no liens or disputes on your property.
- Disclosure: Provide necessary disclosures to the buyer.
Tax considerations
Selling your home may have tax implications. Consult a tax professional to understand your obligations.
Potential taxes:
- Capital gains tax: This may apply if your profit exceeds certain limits. Understanding how real estate capital gains work is essential.
- Property taxes: Prorate property taxes between you and the buyer.
Preparing your home for sale
Before you list your home, take the time to prepare it for sale. A well-presented home attracts more buyers and higher offers.
Tips to prepare your home:
- Declutter and clean: Make your home appear spacious and inviting.
- Make necessary repairs: Fix any visible issues that might deter buyers.
- Enhance curb appeal: Improve the exterior to create a solid first impression.
Choosing a real estate agent
Selecting the right REALTOR® is crucial. They will guide you through the selling process, help price your home, and market it effectively.
Tips for choosing an agent:
- Experience and track record: Look for agents with a strong history in your local market.
- Client reviews: Read reviews and ask for references.
- Marketing plan: Ensure they have a solid strategy to market your home.
Understanding market conditions
Knowing the current market conditions helps you set a realistic price and manage your expectations.
Key market factors:
- Supply and demand: High demand and low supply can drive prices up.
- Local economic conditions: Job growth and economic stability can impact housing demand.
- Seasonality: Certain times of the year might be better for selling.
Conclusion
Selling a home with a mortgage involves multiple steps and considerations. Proper preparation and understanding of the process can ensure a smooth transaction.
