Can I Sell A House If I Still Owe On It?

You have a house you want to sell. You still have a mortgage. One question we get here at kcmoHomeBuyer is “Can I Sell My House If I Still Owe On It?”

The Short Answer is Yes, you can sell a house if you still owe a mortgage. But before we dive into all the details, we want to remind you that this article provides basic information and should not be considered financial, tax, or legal advice. We always encourage our home sellers to reach out to an advisor regarding their own specific situation.

So back to our question . . . Can I sell my house if I still have a mortgage?

For the average Kansas City Metro Homeowner, you bought a house and you put some money down (or maybe you had no downpayment) and you financed the rest. When you financed you were probably offered the option of paying over 30 years, 20 years, and in some cases 15. Now you want to sell your house and you still have some time remaining before it’s paid off. So what do you do?

Now, most will think that you need to determine how much you still owe (which you do) and then make sure the sale price of the home pays off your remaining mortgage balance, plus all the costs associated with selling the house. But in some cases you can sell your home for an amount that does not quite cover everything, it’s not advisable, but it can be done.

There are a couple of scenarios where you can sell your home for less than all those costs, one is a short sale where your lender takes a short pay off and the other is selling subject to where your buyer purchase your home but your current mortgage stays in place and the new owner starts making payments. More on these options in a minute.

Your First Step: Determine How Much You Still Own on Your Current Mortgage.

When you first start thinking about selling a home and you still have a mortgage, your first order of business is to determine how much you still owe. You might have a rough idea in your head, but you should still confirm.

You may still receive paper statements monthly reminding you to pay your mortgage, you can quite often find your current balance on this statement. If you have online access to your mortgage, you should be able to log into your account and determine your loan balance. And if you want to know the exact amount you can request a payoff from your lender either through your online portal or by calling a number on your statement. Quite often this is a free service, although some lenders will charge a fee if you want it in a letter form in a rather short time frame.

Second, Determine What Your House Is Worth.

Once you know what you owe, now you need to figure out how much it would sell for. There are quite a few free online websites that can give you a rough idea of value: Realtor.com, Trulia, Redfin, or Zillow just to name a few. But these will provide a very ROUGH idea.

When looking at these resources on the home value you will need to read descriptions of the home and look at a lot of photos. A pattern of home values will emerge with 4 or 5 tiers of home prices:

• Really high-end homes, not only updated but often modernized.
• Totally renovated homes
• Average homes that have been maintained but are not all new.
• Very dated homes that need new kitchens, baths, and finishes.
• Homes that are not only very dated but also in very poor repair

Sometimes you can see these tiers and price points, sometimes it takes a bit of work and it’s up to you or the person determining your value to decide where your home fits.

When we list a home for sale here at kcmoHomeBuyer we usually look at totally renovated homes and the average homes as our benchmark price and then we look at the photos to see what repairs we will need to do to make our home average or renovated, we then back off the costs of those repairs as well as the other costs.

Third, Determine Your Repair Costs

Now that you have a target value of your home in mind from the last section and a rough idea of what repairs need to be made to bring your home to that value, you need to spend some time figuring out what it will cost to make those repairs. You don’t necessarily need to do the repairs, but you need to know what it would cost.

You can get a rough idea of costs by doing a lot of internet searches and looking up costs. You can also call up a lot of contractors and have them come in and give you an estimate. Whatever works for you, as long as you know the repair costs in dollars and also how long it will take you to get them done.

Fourth, Estimate Your Holding Costs

Now, these are fairly simple numbers you can figure out. Your holding costs are just a matter of adding up what you spend on principal payments, interest payments, real estate taxes, insurance, utilities, yard maintenance, and any other costs you have while holding your home. Figure this number out for a monthly basis and you know your monthly holding costs.

Multiply the monthly costs by however long you think you would need to get all the repairs made, find a Realtor to list the home for sale, time to market for a buyer, and then time to get the sale closed. You might also add a couple of extra months in there for good measure.

Fifth, Estimate What it Will Cost to Sell Your Home

There are a lot of closing costs involved when selling a home.

• Notary Fees – fees charged by the person notarizing signatures
• Transfer Costs / Taxes – these vary by county and state
• Appraisal Costs – usually this is an expense for your buyer getting a loan, but sometimes if a 2nd appraisal is required, the seller must foot the bill.
• Inspection Fees– also an expense for the buyer, where it affects you as a seller is in the repairs the buyer asks you to make or that the lender requires to provide the loan.
• Origination Fees – also an expense of the buyer, unless they ask the seller to pay their closing costs.
• Recording Fees – these are usually minimal for the seller, recording the deed and any lien releases.
• Title Insurance – This is an expense for the seller to provide the buyer with a clean title and homeowner title insurance.
• Underwriting and Bank Fees – generally an expense for the buyer, but sometimes the seller will have a fee to their lender or other lien holders to provide payoff letters.
• Courier Fees – we don’t see this as much in this digital age, but sometimes a document must be delivered either by overnight service or a courier.
• Wire Transfer Fees – to get the proceeds of the sale from the title company to your bank will usually incur a wire transfer fee, of course, you might be able to get an old-fashioned check for free.
• Real Estate Commissions – while totally negotiable, the average seller in Kansas City is going to pay a 6% real estate commission to their agent.
• Administrative Fee – Many agents don’t want to come out of pocket to pay their broker’s review person, so there is an additional $200 to $500 administrative fee over and above the real estate commission. Not all agents charge this, so ask.
• Attorney Fees – And in some areas, not usually here in Kansas City the title company has a fee for an attorney to review the transaction. Or if your transaction requires the advice and assistance of an attorney, for example in probate, you might have attorney fees.
• The Buyers Closing Costs – Sometimes buyers may also ask for the seller to pay their closing costs out of the proceeds of the sale. We don’t see this as much right now in 2021’s super seller’s market, but when homes are moving slower and it is a balanced or buyers market, we see more requests for this to happen.
• Prorations – While these are not actual costs as they would be expenses you have as the owner of the property, the title company prorates things like real estate taxes, homeowner fees, and rental incomes to make sure the buyer and seller for the most part only pay or receive these items during the time they own the property. So as a seller you might see a large expense for these coming out of your proceeds to compensate the buyer who will have the full year bill for these items at the end of the year.

Now It’s Time to Crunch Some Numbers

You want to determine how you want to sell the home, which usually has 4options:

1. Sell it as is without doing much of anything
2. Selling it with some basic cleaning, staging, and making what you have look its best.
3. Selling it with some updates
4. Renovating and then selling it

Each of these 4 options is going to have a different value to sell, different repair costs, different holding costs, and different selling costs. The first option will have the lowest sales price, but also the lowest costs overall. The last will sell for the most, but have the highest costs overall and could cost you months or even years of time getting all those renovations completed.

Right now in 2021 – with it being the best seller’s market we have ever seen, we would highly recommend focusing on the first option. Home Values are high right now, but the market is cooling slightly and as it does those values will come down. At the same time, repair costs are HUGE because of the cost of limited materials for renovations and the limited number of contractors. We would suggest getting your home as clean and as uncluttered as possible so it shows its best and then putting it out there for sale.

However, a few years ago, when the market was more balanced, we would have suggested to at get it clean and uncluttered. We would have also suggested that if the home was for the most part in a decent average condition that you might do a little staging and sprucing up.

In any market, if the home is in really poor condition and needs a total overall or may not a total overall, but major repairs, we would never recommend making these repairs to the average homeowner. If it is your business to renovate homes, like it is ours here at kcmoHomeBuyer, go for it. But if you don’t work in the industry a total home renovation is in our opinion not the best use of your time.

Determine Your Proceeds Based on How You Will Sell

• Start with the approximate value of your home based on how you will sell it.
• Subtract the costs to clean and make the repairs you have decided to make
• Subtract the holding costs for your time needed
• Subtract your costs to sell

This will give you your estimated proceeds from the sale of your home.

Now Let’s Factor In Your Mortgage

Now you know your rough estimate of time and sale proceeds, now compare that to your mortgage.

Proceeds Exceed the Mortgage

When the proceeds of your home sale are higher than what you own on your mortgage, then you should not have any problem selling. The only problems might arise when you have other liens on the home for other mortgages, other loans, unpaid taxes, unpaid homeowner association fees.

Proceeds are Less than the Mortgage

This happens sometimes, especially if you have not owned your home very long or if you are behind on your mortgage, you may find that your sale proceeds are less than what you owe. This can make it really hard to sell your home, but it should not stop your efforts.

Buyers Who Buy Subject To The Existing Mortgage

You may find a direct buyer who would buy your home and take over your monthly mortgage, knowing full well that the mortgage might exceed the actual value of the home. This is called Subject To. Selling this way can save you real estate commissions and the person buying might absorb some of the other costs of selling. The buyers who buy in this fashion are looking for a way to acquire a home for rent that allows them to hold the home, with your mortgage, and collect rent payments for profit.

Just keep in mind that this type of seller will not be paying off your mortgage, which may or may not be an issue for you.

Buyers Who Buy Through a Short Sale

Short Sales have been around for quite some time and are a sale negotiated with your lender that allows you to sell your home and pay them less than what you owe. This has become much more mainstream since the mortgage meltdown years in 2008-2014. Realtors list homes and negotiate short sales for sellers. Cash home buyers make offers and negotiate short sales with lenders.

Keep in mind there are still rules and hoops to jump through. Just like you as the buyer had to be approved to get the loan, you as the now seller will have to be approved financially to sell short. In most cases, the lender will allow enough in proceeds to pay your closing costs, but they typically will not want to give you any other proceeds. And in some cases, whatever amounts they write off may end up on 1099 to you at the end of the year as income to you. So be sure to consult with your accounting advisor.

If You are Behind on Your Mortgage

Going back to selling a house with a mortgage. Yes, you can do it, people do it all the time by selling for sale by owner or by listing with a Realtor.

But what if you are behind on your mortgage payments? Right now if this is the case, be sure to reach out to your lenders because there are many programs in place that came out of the great recession and from the COVID stimulus to help you find a way to refinance, modify, or extend your loan so you can avoid foreclosure. When you have exhausted these options, or if you still can’t make the monthly mortgage payments, your last option is to reach out to a local investor buyer and see how they can help you.

You may find that this buyer can pay you cash, and cover what you owe.

You may find a buyer that can take over your payments if that works for you.

And you may find a buyer that will work with you and your lender on a short sale.

If you are considering selling and want to see what we can do for you here at kcmoHomeBuyer, give us a call at (816) 408-3600 or submit your property through our submission form or request our free report on avoiding foreclosure.