If you’re selling your house and paying cash for another, then you might be relieved that you don’t have to worry about a mortgage. Wrong. Even as home sellers, you should still be concerned with mortgages. If your buyer can’t get one, then you can’t sell your.
Below are five mortgage tips for home sellers.
It might seem strange that you would be charged a fee for paying your mortgage ahead of time, but some banks do charge a fee for this. The fees can be fairly costly, and they’re more common in loans issued before the big crash in 2008. Nowadays, you only have these fees if you pay off a mortgage over the course of three years.
Most of these fees cost about six months worth of interest on the outstanding balance of your mortgage. Let’s say your mortgage is down to $50,000 and you want to pay it all off. Your fee will be whatever your interest rate is of that total amount.
Some banks will put these prepayment fees in the note section of your mortgage paperwork, but it could also be in an addendum to that note. Make sure you read over everything twice and double check just to make sure.
After you sell your home and pass the closing date, that money that you brought in goes to an escrow company. That company will then transfer your funds to the bank so you can pay off your mortgage. Usually, this happens within two days of the closing date, You will receive a closing statement, including any additional profits left over, to prove that the mortgage was paid off.
Depending on your situation, home sellers may have to pay taxes or capital gains. If you’ve only lived in your home for two of the last five years that you’ve owned it, then you won’t have to pay taxes up to $250,000 if you’re single and $500,000 if you’re married.
Capital gain are calculated based on the tax basis and selling costs subtracted from the price. The selling costs consist of any agent fees such as staging and additional closings costs, which could come from escrow or title companies. The tax basis is comprised of the purchase price of your home plus any improvements you’ve made minus the depreciation (if any).
Once you calculate how much money you made from the sale of your home, you can then reinvest in and apply for another mortgage.
To give you an idea of how much you’ll get, send your lender an estimate of what you hope your home sells for. Then subtract the balance on your mortgage as well as the closing costs and other fees. The rest can go towards your new loan.
You don’t have to wait to buy a new home. If your income can handle two mortgages, then you can go ahead and buy the second home.
If you can’t afford both, then you may be able to work with a lender to help you negotiate a new loan that doesn’t include the outstanding debt on your old mortgage. Speak with a skilled lender for this option.