How does a mortgage work?
This is a question many people will ask themselves possibly more than once over the course of a lifetime. This is especially true when they are in the market to buy or sell their home. Another question that will probably come up is whether you can sell a house with a mortgage. There are many reasons why people may have to buy a home when they still haven’t finished paying the mortgage on their first house. Their family may have grown. They might have to relocate due to work. Regardless of the reason, it is always good to know the answers to both questions. So, let’s get started on the answers.
Simply put, a mortgage is a loan that allows you to purchase property. In most cases you are going to have to pay at least 5% of the value of the property up front. This amount is what people know as a down payment. The other 95% will paid by a lender, such as a bank or other financial institution. The amount you borrow is then paid off in monthly installments for a period of around 20 years. This period may be open to negotiation with the lender, who may agree to make it longer or shorter.
Additionally, you will have to pay interest on your loan, which will increase the total amount you pay. This is how your lender makes a profit. There are two types of interest rates: fixed and variable. The one you pay will depend on what the lender offers. Lastly, a mortgage is a type of loan that doesn’t require collateral. This is because your property itself is what secures the loan. When you finish paying off your mortgage, you will be able to claim full ownership.
Can you sell a house with a mortgage?
The short answer to this question is a resounding YES! The long answer, while similar to the first, is: it depends on whether you will end up losing money. To sell a house with a mortgage is possible, but you have to consider a few factors before you do, including:
- Viability of the sale price – when you still have a good way to go before you finish paying your mortgage, you have to make sure your sale price is higher than whatever amount remains of your loan. This is especially true when you are going to look at purchasing a new home with whatever money you have left.
- Equity – if real estate prices in your area have dropped and your house is now worth less than when you bought it, selling it may not be a financially sound idea.
- Early termination fees and penalties – check the terms of your mortgage to make sure you are not penalized for terminating early. Especially if you are still in the first half of the repayment period.
The difference between short sales and foreclosures
In times of financial distress, homeowners may find that the only way out is to sell their home. This is true even when there is still a mortgage on it. Short sales and foreclosures are two financial options available to them, although both can, and will, have a negative impact on their credit scores. This means their chances of getting a loan at a future date will be much lower than before.
But, what is the real difference between these two processes? Let’s take a look. A short sale takes place when the lender allows homeowners to sell their property for a price that is lower than the amount that is still owed on the mortgage. So, in a few words, you will end up selling your house for a highly reduced price in order to get rid of it faster. On the other hand, a foreclosure happens when you can no longer make your mortgage payments and the lender repossesses it against your will. This happens because, as we mentioned above, the property itself secures the loan.
Selling your house for cash
Another way to sell your house at a fair value, without damaging your credit report, regardless of how much remains on your mortgage loan, is to accept a cash sale. There are many favorable reasons to do it, including saving money on repairs or making your home look nicer in order to attract potential buyers. So, if you are looking to sell a house with a mortgage, don’t forget to request a cash offer from WeBuyHouse to find out how much you can sell your house for today.
Dyan Zammataro | Sep 2, 2020
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