Selling your property while in mortgage is a fairly common thing. Being in mortgage simply means you still owe money to your lender and have not yet satisfied your home loan. Typical mortgages run 15 to 30 years, and homeowners regularly sell their homes to move before loans are paid.
The first thing to do when you get together with a real estate listing agent is to find out your current mortgage payoff. This helps you and your agent figure out what your current borrowing situation is and how much you need to sell your home for to cover the loan balance. Your mortgage lender usually gives you a payoff quote good for a certain period of time.
The Simple Process
In an ideal home sale process, you sell the home and get enough money to easily pay off your loan balance. In this situation, your agent usually works with your title company and real estate lawyer to prepare loan closing documents and a settlement statement. When the buyer closes on your home, his funds are used to pay the remaining balance on your loan and any additional fees you owe in the sale. The remainder goes to you as your gain on the sale.
In a less ideal situation, your home is not worth what you currently owe on your mortgage. When the housing market is poor, this sometimes happens to homeowners. If you have to sell your home, you can go to your bank and try to arrange a short sale. In a short sale, your lender agrees to take a reduced payoff amount to work with you in completing a sale of your property.
An assumed mortgage is a rare, but possible, option when you sell with a mortgage. Some lenders allow a buyer to take over an existing mortgage if he meets certain income requirements. This is more appealing to buyers if your loan rate is below the current market. Another issue is what to do if you have to move before your home sells. Taking on another mortgage on a new home is a big financial challenge. Some lenders do allow higher debt-to-income ratios of 50 to 55 percent if you have good income and credit, according to Stacey Bradford's MSN Money article, "Selling your home while buying a new one." A bridge loan or renting your home are other possibilities.
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