Can I Sell My House If I’m Behind on Mortgage Payments?
If you’ve suffered a job loss or a major medical event, you can quickly find yourself falling behind on your bills. Fall behind on your mortgage, and your property can quickly go into foreclosure. You might be thinking that selling your house is your only solution to catch up. Can you sell your house In this situation? The answer is yes—if you’re not officially in foreclosure yet.
According to the Consumer Financial Protection Bureau, you usually have 120 days before a lender can start the foreclosure process against you. If you are behind on your mortgage payments, it’s important to act quickly because you could be missing out on the opportunity to re-work your loan with your lender. You can talk to a government housing counselor to find out what your options are. It may be possible to work out an alternative payment plan or get a mortgage forbearance.
A foreclosure is reported on your credit report and can drop your credit score significantly. This will impact your ability to qualify for another mortgage for years down the road.
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You have up until the day that foreclosure takes place to sell the home on your own. Still, the process of selling your house before foreclosure isn’t easy. Here’s what you need to know.
Can I Sell My House?
If you have just fallen behind on your mortgage payments and don’t have a way to make those payments for the foreseeable future, you may be able to sell your house quickly to get out of a pickle. In the current climate of the US housing market—and especially in Harford County, MD where housing prices have gone up significantly in recent years—your house may be worth more than what you owe on the mortgage. However, this will depend on your individual situation and mortgage/refinance history. If your house is worth more than what you owe on the mortgage then you can sell it and use the profits to pay back the lender.
When selling property the traditional way, the escrow company will get a payoff amount from your lender and pay off the any existing mortgages at closing. This process looks largely the same when selling a house that is behind on payments—you will owe your lender what’s left on the mortgage plus any missed payments, interest and penalties.
In the event that your mortgage is more than what you could sell your house for, you may have to do a short sale, (a transaction in which your lender allows you to sell the house for less than what you owe on your mortgage). Lenders are not always eager to approve these kinds of transactions, but it is preferable to going through the foreclosure process.
Can you sell a home if you’re behind on your mortgage?
Whether or not you can sell your house before foreclosure will depend, first and foremost, on whether your house is worth more or less than what you owe on your mortgage.
If you’ve fallen behind on your loan payments but aren’t underwater yet—meaning the fair market value of your home is greater than what you owe on your home loan—you can sell your house and use the profits to pay back your lender.
If you choose to go this route, you’d follow the same steps you’d normally take to sell a home: You’d find an agent, accept an offer, and fulfill any contingencies before closing on the sale. Typically, you don’t need to get your lender’s permission to sell your home this way.
However, if your home is worth less than what you owe on your mortgage, you’ll need to sell your property as a short sale to avoid foreclosure. The caveat is that your bank has to be on board with this kind of transaction.
Here’s how a short sale works: Let’s say the bid you get on your home is so low that it won’t cover the total amount you owe on your mortgage. If you accept the offer, you’re going to end up “short” on paying back your lender. That’s OK only if your bank has agreed to accept less than what’s owed on the loan.
Getting your bank’s blessing, however, may be difficult. Since lenders lose money with short sales, they’re not always eager to approve these transactions. But some lenders actually prefer short sales over foreclosing and repossessing homes, since owning and selling property can be huge hassles.
Before approving a short sale, your bank will require you to submit some paperwork, including your offer letter and a “hardship letter” explaining why you can no longer make your mortgage payments, along with financial documents such as income statements or medical bills to back that up. Also, most lenders will have your home appraised to determine if the offer you’ve received is fair. If it is, they may allow the deal to go through—though there may be stipulations.
Indeed, lenders will often counter short sale offers with their own demands in an effort to raise their bottom line. For example, buyers might hear, “We’ll accept your offer, but you’re responsible for all repairs, wire transfers, and notary fees.” It’s ultimately up to you, though, to decide whether you’re willing to absorb these extra costs. The good news: Your real estate agent can help you negotiate these terms with your bank.
As a home seller, a short sale is preferable to foreclosure, since short sales do way less damage to your credit score than a foreclosure. This means you’ll be in better shape to apply for a mortgage and buy a new home down the road. In addition, you get to stay in the home until the sale is completed. (Foreclosures force homeowners to vacate.) You also avoid the shame of having your property repossessed by your bank.
What If My House Won’t Sell?
When it comes to selling your house, you have options. You can list your home and put it on the market, but don’t necessarily have to go that route. If your house is not in great shape and you don’t have money to fix it up, you may be worried that it would sit on the market for a long time without selling. If that’s the case you can contact a local real estate investor to see if they will purchase your home as is. At times this may be a faster and more flexible solution for all parties involved.