Just over 5 million new homes sold in 2019. That number is projected to go up slightly in 2020 which is good news for you if you’re thinking of parting ways with your living space.
If you’re like most people, the house you may be planning on selling was funded by a mortgage which begs the question: What happens to your mortgage when you sell your home?
The answer to that varies depending on several factors. To bring some clarity to the query, our team has laid out a few tidbits that most home sellers can expect to encounter.
1. Proceeds From Your Sale Will Go Toward Your Balance and Closing Costs
The moment you sell your home and your buyer’s financing comes through, the very first place that money will go is towards the balance on your mortgage. Once your mortgage is paid off, the remaining money will go toward closing costs associated with your sale.
These closing costs might include HOA fees, property taxes, escrow fees and more.
2. Prepayment Penalties May Be Assessed
Once your home sale proceeds pay off your mortgage and closing costs, you might think you’re free to pocket the remainder. As it turns out, there’s a what happens to your mortgage when you sell your home factor that a lot of people forget…
That factor is prepayment penalties.
As a contingency in some mortgages, borrowers are required to carry their mortgage for a certain period of time. If you pay off your mortgage ahead of that period, your lender may assess fees.
These mortgage loan programs may be free of prepayment penalties for qualified buyers so explore them or similar programs when procuring your next property.
3. You’ll Get Paid
Once you’ve paid off any applicable fees, your mortgage’s balance and closing costs, your mortgage is officially laid to rest! At that point, any money that’s leftover will be given to you via check or more likely, direct deposit.
Owe More Than You Can Sell Your Home For?
The above causes and effects assume that you’re selling your home for more than you owe. If you’re upside down on your house and can’t get enough money from your home sale to cover your mortgage though, you’ll either need to pay your lender the remaining balance cash or opt for a short-sale.
Short-sales need a lender’s approval and will likely hurt your credit score.
What Happens to Your Mortgage When You Sell Your Home Varies so Talk to a Professional
As we noted, what happens to your mortgage when you sell your home will vary depending on several unique factors. Because of that, we always recommend talking to a local advisor that can better direct any home sale questions you may have.
We hope our information has given you some context to shape those conversations and welcome you to explore more helpful insight on our blog!