You found your dream home, but you still owe money on your current home you purchased five years ago — and you still have 25 years to go on your mortgage. Can you sell your home even though you haven’t paid off your current mortgage?
Yes, you can. While you may encounter some challenges along the way, most can be addressed with a combination of advanced planning and collaboration with your lending institution. Follow these suggestions for a smoother journey into a new home.
Open a Dialogue with Your Lender
The first step is to approach your lender and begin discussions about your situation. It’s standard practice in the industry to time a sale and a purchase on the same day.
Keep in mind the following to help prepare you as you move forward with the sale of your home. Remember that not every step will follow your ideal plan, so knowing your options will help you make better decisions if the sale of your current home doesn’t go as planned. Confirm how much you still owe on your current mortgage and establish a budget for your new mortgage.
Settle on a Sale Price that Will Cover Your Loan Balance
Not every home sells for its asking price. Still, you should have a goal amount in mind that will allow you to pay off the balance remaining on your current mortgage before you enter into your new mortgage. If your home sells for even more than what you currently owe, you can put the excess money toward a down payment on your new home. You’ll want to speak to your realtor, as he or she will typically be the one who will assist in setting the sales price, specifically to cover the payoff.
If you don’t obtain a sale price that covers your remaining mortgage balance, then you may not be able to pay it off, and that will complicate your attempt to buy the new home. If you don’t receive quite the offer you were hoping for on your current home, you can still sell it, as long as you can repay the existing mortgage. When the home is sold to someone else, you’re required to repay any money you borrowed with the home as collateral to secure the debt.
Ease the Logistics of Getting a New Mortgage
Selling your home with an existing mortgage while buying a new one can be a challenging process. Here are a few other things to keep in mind as you move forward:
- Explore alternative options, such as making an offer to purchase the new house with a contingency requiring your current home to be sold before you close. This could protect you from carrying two mortgages if you’re unable to find a buyer for your current home.
- Consider taking out a home equity loan on your current home to use as a down payment for the new one if you can’t line up the timing of the sale and your new purchase. Remember, if you take out a second mortgage against your current home, then you’ll need to sell your current home for an amount that will cover the first and second mortgage, or rent out the home until you’re able to sell it at a price that covers the outstanding mortgages.
- Have contingency plans in place. In almost every case, something unexpected occurs, and you want to be ready to handle it.
Join PSECU and Apply for a New Home Mortgage
When you’re applying for a mortgage, you want a lender that can provide you with the best assistance and advice throughout the home sale and buying process. Consider joining PSECU and applying for a mortgage, if you’re in the market for a new home. We have mortgage experts on staff who can answer your questions about the process, and help you find the right solution for you. If you’re a Pennsylvania resident, you’re likely eligible for membership. Complete an application today.
You can find more tips for purchasing a new home and managing your money on our WalletWorks page.