Selling a house with a mortgage is a common scenario that requires careful planning and knowledge. Whether moving for work, upsizing, or downsizing, understanding each step can help you make the most of your home sale.
A real estate transaction with a mortgage isn’t that much different than if you didn’t have one. Some people pay off their mortgages early.
I have gone to great lengths to make selling a home with a mortgage easy to understand. My guide will provide the following:
- How to obtain a payoff quote and understand your home’s equity.
- Critical considerations for setting a listing price, including the best time to sell.
- Strategies for dealing with negative equity, including short sales.
- Tips for selecting a real estate agent, staging your home, and covering closing costs.
- Financial advice on managing proceeds, handling taxes, and arranging new mortgages.
Let’s walk through the process step by step.
1. Obtain a Mortgage Payoff Quote
The first essential step in selling a house with a mortgage is to obtain a payoff quote from your lender. This quote details the remaining balance on your mortgage, including any interest accrued up to the date you plan to close the sale.
Contact your mortgage lender and request a written payoff statement. This document will outline:
- The principal balance that is remaining on your mortgage.
- Any interest that is due up to the payoff date.
- Additional fees, such as prepayment penalties or administrative costs.
Understanding your payoff amount is crucial because it helps determine how much you need to cover when selling the house and whether you’ll have any leftover proceeds.
2. Understand Your Home’s Equity
Equity represents the difference between your home’s market value and the remaining mortgage balance. To calculate your home equity:
- Estimate Your Home’s Market Value: This can be done through a professional appraisal or by comparing recent sales of similar homes in your area (comparable sales or “comps”).
- Subtract the Payoff Amount: Deduct the amount specified in your payoff quote from the estimated market value.
For example, if your home is valued at $500,000 and you owe $400,000, you have $100,000 in equity. This equity can be used towards your next home purchase or other financial needs. However, if your equity is negative (i.e., you owe more than the house is worth), special considerations such as a short sale may be necessary.
Your real estate agent can help you understand what you’re not proceeds will be from the sale.
3. Dealing with Negative Equity
Negative equity occurs when your mortgage balance exceeds your home’s market value. In such cases, a short sale might be an option:
- Short Sale: With the lender’s approval, this involves selling your home for less than the mortgage balance. It can help you avoid foreclosure and mitigate damage to your credit score.
- Negotiating with Lenders: Lenders may require proof of financial hardship and a thorough explanation of why a short sale is necessary. A real estate agent experienced in short sales can be invaluable in navigating this process.
- Other Options: If a short sale isn’t viable, consider refinancing, loan modification, or renting out the property.
Consulting with a financial advisor or attorney can help you understand the implications of these options and choose the best course of action.
4. Choosing the Best Time to Sell
Timing can significantly impact the success of your sale. Consider these factors when deciding the best time to sell:
- Market Conditions: A seller’s market (where demand exceeds supply) can lead to higher prices and quicker sales. Conversely, a buyer’s market can mean more competition and longer selling times.
- Seasonal Trends: Spring and early summer are typically peak times for home sales due to favorable weather and school schedules. However, market conditions can vary by region. Avoiding the worst time to sell can lead to more money in your pocket.
- Personal Circumstances: Consider your readiness to sell, including financial and logistical factors, such as finding a new home.
Discussing with a real estate agent can provide insights into the optimal selling period based on current market trends and your situation.
I recommend you look for an honest agent about the best time to sell. Some real estate agents will always say NOW because they only care about putting a commission in their pocket as soon as possible.
Knowing the worst months to sell a home can help you make the best financial decision.
5. Set a Listing Price Based on Market Data
Once you understand your equity and the market conditions, it’s time to set a listing price. This step is crucial and requires a strategic approach. It is one of the most vital steps for getting the most money for your property.
- Comparable Market Analysis (CMA): Your real estate agent will provide a CMA that compares your home to similar properties recently sold in your area. This analysis considers factors such as size, condition, and location.
- Price Adjustments: Be prepared to adjust your listing price based on feedback from showings and changes in the market. Overpricing can deter buyers while underpricing might lead to quicker sales but lower proceeds.
Pricing your home correctly balances attracting potential buyers and maximizing your return.
6. Prepare Your Home for Sale
A well-presented home can significantly impact its sale price and time on the market. Preparation involves several steps:
- Decluttering and Cleaning: Remove personal items and excess furniture to make your home appear more spacious and inviting.
- Repairs and Upgrades: Address any minor repairs (e.g., leaky faucets, peeling paint) that can improve your home’s appearance. Consider minor upgrades that offer good returns, such as fresh paint or updated light fixtures.
- Staging: Excellent staging advice can highlight your home’s best features and help potential buyers visualize living there. If hiring a stager is not an option, arranging furniture to create an open and welcoming space can also be effective.
- Professional Photography and Descriptions: High-quality photos and detailed descriptions for online listings are essential as most buyers begin their search online.
Kay Fisher of Fisher and Company emphasizes this to her clients. I could not agree with her more!
Having high-quality professional photographs and engaging property descriptions is essential when selling a house. First impressions are everything, and that first photo could make or break a potential showing.
Good-quality pictures can showcase a property’s character and standout features, setting it apart in a competitive market and drawing in potential buyers. Combined with an appealing and informative listing description, these elements make a strong initial impact, ensuring that your home gets the attention it needs and sells swiftly at a favorable price.
Opting for professional photos is highly recommended as they accentuate your home’s special qualities, establish an emotional connection with buyers, and significantly boost online interaction, resulting in more viewings and offers.”
7. Choose The Best Real Estate Agent
A knowledgeable real estate agent can streamline the selling process and maximize your sale price. Besides the right asking price, selecting the best Realtor will go a long way toward your success.
Consider these factors when selecting an agent:
- Experience and Expertise: Look for agents with experience in your local market and a successful track record of selling similar homes. Use these interview questions to find the best agent.
- Marketing Strategy: Discuss the agent’s plan for marketing your home, including online listings, open houses, and advertising strategies.
- Communication and Compatibility: Choose an agent you feel comfortable with and who communicates effectively. Good rapport and clear communication are critical to a successful partnership.
Interview multiple agents, check references, and review their recent sales history to make an informed choice.
8. Closing the Sale
After accepting an offer, the closing process begins. This involves several steps:
- Reviewing the Offer: Consider the offer price, contingencies, and closing timeline. Contingencies might include inspections, financing approvals, or selling the buyer’s current home.
- Negotiations: Be prepared for negotiations, which may include requests for repairs or adjustments to the closing date. Your agent will assist in these discussions.
- Finalizing the Sale: Work with your agent and attorney to complete the necessary paperwork, including the purchase agreement, title transfer, and closing disclosure.
You’ll pay off your mortgage and other associated costs, such as agent commissions and closing fees at closing.
9. Handling Closing Costs and Proceeds
Closing costs can range from 2% to 5% of the sale price and include:
- Title Insurance: Protects the buyer and lender from title defects. In most areas, buyers pay for this but be prepared if that is not customary.
- Escrow Fees: Cover the cost of escrow services, which handle the funds and documents during the sale.
- Transfer Taxes: You will pay a transfer tax in most places when selling.
The remaining proceeds are yours after deducting these costs and your mortgage payoff. Plan how to use these funds, whether for a down payment on a new home, paying off debts, or investing.
10. Financial Advice Post-Sale
Post-sale, it’s essential to manage your finances wisely. Consider the following:
- Tax Implications: Consult with a tax professional to understand any tax liabilities or benefits from the sale. You may have capital gains tax that must be paid.
- New Mortgage Arrangements: If purchasing a new home, explore mortgage options and secure pre-approval to streamline the buying process.
- Investing the Proceeds: Consider investing in a diverse portfolio or using the proceeds to improve your financial stability.
Proper financial planning can help you maximize the sale’s proceeds and prepare for your next steps.
Conclusion
Selling a house with a mortgage isn’t unusual but requires some planning and strategic decisions. As I mentioned, key considerations include understanding your payoff amount and equity and choosing the best time to sell. Dealing with negative equity and selecting a skilled real estate agent is crucial for a successful sale.
Once sold, managing proceeds, closing costs, and new mortgage arrangements are essential. The next step might involve exploring options for investing your sale proceeds or planning your next home purchase.
For further insights, consider resources on financial planning or real estate investing to continue your journey. Please contact me if I can answer any questions or help you with the sale of a home in the Metrowest, Massachusetts area.
About the Author: Bill Gassett, a nationally recognized leader in his field, provided the above real estate information on selling a house with a mortgage. Bill has expertise in mortgages, financing, moving, home improvement, and general real estate.
Learn more about Bill Gassett and the publications in which he has been featured. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. For the past 38+ years, Bill has helped people move in and out of Metrowest towns.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge Massachusetts.
