What Happens to a Mortgage Loan When You Sell?
In a typical home sale, the homeowner is able to sell the property for more than the amount of the mortgage loan, and walk away with some money. However, not all sales are typical. Here’s what happens to your mortgage after you sell your home.
The Loan is Paid to Your Mortgage Lender
When the house has sold, the current amount of the loan gets paid to the mortgage lender. This is what happens the majority of the time. The house is the collateral in a mortgage loan. That means if you sell the house, you’re giving up the collateral, so the entire loan comes due. State laws protect lenders in this regard, so when you sell your house, the mortgage lender gets paid first. The money that goes in your pocket is only what is left after paying down the mortgage.
But what happens if you sell the house for less than what is owed on the mortgage? Because of the lien against your home, you do not have the right to sell it unless you can cover the mortgage or go through the proper channels to create an exception.
Exceptions Do Exist
While the general rule is that the mortgage gets paid in full when you sell a house, there are two exceptions worth noting.
A short sale is when a homeowner sells their home for less than the balance of the mortgage. To initiate a short sale, you must work with your lender to agree to the sale. If the bank agrees, they will let you sell the house for less than you currently owe on it, but the bank gets all of the proceeds from the sale. This situation can happen when the homeowner cannot pay the monthly payments. Lenders are often willing to work with you on a short sale rather than put the home in foreclosure. The challenge of a short sale is that the lender has the final say in how low of an offer you can accept. Plus, you will walk away with no money from the sale.
Another situation where the mortgage isn’t paid in full after a sale is when the house is in foreclosure. If a homeowner fails to pay the mortgage payments for several months, the bank will start the foreclosure process. In this situation, if the homeowner doesn’t take action, the bank will take over the home and sell it themselves, usually at an auction. When the home sells, the lender gets all the money from the sale, regardless of how much is still owed on the mortgage. The bank has taken the home off of your hands, but you don’t walk away with a clean slate. A foreclosure can negatively affect your credit for years to come.
When you sell your home, the ideal scenario is that you pay off your mortgage and make some money on top of that. But to sell through a traditional realtor process, there are lots of steps involved. Getting a home ready to sell can be a challenge. Your best option may be to sell your house to a cash home buyer, who can give you a fair deal on your home, regardless of its condition.
You can sell your home fast, and avoid a short sale or foreclosure. Frank Buys Houses is a trustworthy cash home buyer who can guide you through the process. You can sell your house, for cash, in as little as a week. Contact us online, or call us at 209-395-1355.