How To Sell A Home Behind On Mortgage Payments?
If you’re wondering whether you can sell your home behind on mortgage payments, the short answer is yes. However, you need to consider certain factors before you can sell it. Factors such as your mortgage balance, the condition of your home, or where you live would determine if you can easily sell the home.
To help you easily understand this topic, we will give a detailed explanation in different sections of this article. Let’s jump right in!
How Far Are You Behind On Mortgage Payments?
Being behind on your mortgage payments is a stressful situation to be in. You may worry about the lender foreclosing on your home or seizing it. It is better to sell your home during the pre-foreclosure period, which begins when you’re up to 90 days behind on your mortgage payments.
Selling during the foreclosure process is still possible, but can be stressful if you’re not able to sell the house at a fair price before the foreclosure process ends. So don’t wait until the foreclosure process begins before making plans to sell your home.
Take note: If you’re trying to sell a home that needs many updates or renovations, then it won’t be worth market value and would be sold at a deeper discount.
Compare The Value Of Your Home’s Worth To The Mortgage Balance
Comparing the value of your home’s worth to the mortgage balance would help you to know whether you have an underwater mortgage or not. We will discuss this term in this section.
Selling A Home With A Mortgage That Is Underwater Or Above Water
When you have an above-water mortgage
If your mortgage is above water or if the home’s value is more than the mortgage balance, selling the home won’t be an issue since the lender won’t be at a loss and you’d still have equity left. For instance, if your home is worth $250,000 and your mortgage balance is $200,000, you can settle the mortgage and still be left with a home equity of $50,000. You can use some of the equity to pay the necessary costs associated with selling the home.
In selling a home, some homeowners may avail of the services of a real estate agent. A real estate agent would list your home for sale, which can take months before you can find a buyer. But if you want to sell your home as soon as possible, follow a direct approach by partnering with a home-buying company like Buys Houses. Companies like Buys Houses purchase the home directly. They don’t list the home for sale—they buy it themselves. With this approach, you won’t need to wait till eternity before selling your home.
So, rather than looking for a buyer yourself, contact top real estate buyers who would buy your home without any hassles.
When you have an underwater mortgage
But on the flip side, if you have an underwater mortgage (that is your home’s value is less than the mortgage balance), it can be challenging to sell the home. In this case, you can try applying for a short sale. If the lender approves a short sale, you can sell your home for less than what you owe on your current mortgage. You won’t gain any profit from selling your home this way since there is no equity left.
Your home equity is the portion of the value of your home that you own after you’ve deducted the mortgage balance from the current value of your home’s worth.
Opting for the short sale route means all the proceeds from the sale would go to the lender. Realize that your mortgage lender may not easily approve a short sale since they would be on the losing end.
Another issue with a short sale is that your credit score will be affected and also impact your chances of getting approved for a loan in the future. Also, short sale transactions can be a very stressful process involving a lot of paperwork. In a short sale, the lender waives off the lien since the right the lender has to seize the home if the homeowner defaults on the loan is annulled.
For prospective buyers, a short sale is an attractive offer since they get to buy a home at a discounted price.
Alternatives To Selling A Home Behind On Mortgage Payments
If you’re not sure of selling your home behind on mortgage payments, there are alternatives to look out for. Selling your home isn’t the only option to opt for when you can’t pay your mortgage. You don’t need to make a drastic decision for a temporary financial problem or situation. Here are the alternatives you can check out:
1) Loan Modification
This is simply the change of the terms of the loan. A loan modification may involve changing the longevity of the loan, reducing the interest rate, or changing the loan type. If you’re facing a difficult financial situation, opting for this option can help you reduce how much mortgage you’ll pay in installments. If you also feel like a fixed interest rate offers you more stability against fluctuating rates, go for a loan modification to change the rate from a variable interest rate to a fixed-rate mortgage.
2) Mortgage Forbearance
This is a good alternative that allows you to halt or make smaller mortgage payments for a short term due to factors affecting your financial capacity such as illness, job loss, relocation, or divorce. Opting for this option can be a great way to reduce the mortgage payments. Your lender can approve you for a mortgage forbearance if you want to pause your mortgage payments for a specific timeframe or reduce the installment payment.
The unpaid interest and principal (mortgage) will accrue within the forbearance period. When the forbearance period is over, you’ll resume your mortgage payments or make the accrued mortgage payments at the end of your mortgage loan. You may also decide to extend the forbearance period or modify the loan.
Whether you want to pause your mortgage payments or reduce it will depend on your need or the particular situation you’re currently dealing with. It’s best to discuss with your lender so that they can advise you about the best option for your situation.
3) A deed-in-lieu of Foreclosure
This is another option that transfers the ownership of the home from the homeowner to the lender. In this case, you lose the title as the homeowner to be free from any obligation to pay your mortgage debt. This is a much better option for you compared to a foreclosure. Just like a short sale, a deed-in-lieu of foreclosure can show on your credit report and significantly affect your credit score. A foreclosure, on the other hand, comes with legal costs for the foreclosure proceeding and has a bigger impact on your credit score.
4) Refinancing
Refinancing a mortgage involves paying off the current mortgage with a new mortgage that comes with a better term. You can refinance a mortgage to get better interest rates, cash out your home equity, switch the loan type, or change the longevity of the loan.
A cash-out refinance is a type of mortgage refinancing option that allows you to pay your old mortgage with a larger mortgage. After you’ve used the new mortgage to clear the old mortgage, the difference or remaining balance is paid to you in cash.
5) Rent Your Home
With this option, you can reach out to a local realtor to help you decide how much you can lease your property. You can also check the rental prices of similar houses to yours to give you an idea of the rental prices in your area. Know that renting your home comes with potential risks. Your tenant may stop paying the rent or there may be repairs in the home you may need to fix as time goes by, which can cost more than the rental payment. But despite the potential risks involved, renting your home can reduce the financial burden and help you settle your mortgage balance.
6) Bankruptcy
Ensure you get legal advice before filing for bankruptcy. You should only file for bankruptcy as a last resort after other options that you’ve tried haven’t been efficient enough to relieve you from the obligation to pay the mortgage debt. Also, be informed that bankruptcy can stay on your credit report for 7 to 10 years and would have a huge negative impact on your credit score. But on the bright side, filing for bankruptcy can help you keep your home by stopping foreclosure.
In Conclusion – Here’s What To Do Today!
It is possible to sell your home when you’re behind on mortgage payments. Before making any major decision, discuss your situation with your lender and real estate consultants such as Buys Houses.
If you need to sell your house quickly, reach out now to Buys Houses. We buy houses from homeowners like you without a delay. Partner with us by contacting Buys Houses today to sell your home quickly and hassle-free in Pittsburgh and the surrounding areas.