When it comes to a mortgage you would normally expect the repayments to be long term, around 20 to 30 years usually. But is it possible to sell your house if you haven’t paid it off?
There are many reasons in which someone would look to sell their home before paying off the mortgage. Perhaps you’re looking for a bigger property or you’ve had a change in circumstance. Below we look at the different ways you can sell your house on which you are still paying off.
Can you sell a house before it’s paid off?
Yes, you can sell your house at any time even if the mortgage hasn’t been paid off. This is a pretty common practice for homeowners looking to sell, however, there are a few things to consider if you are looking to go down this route.
The most important thing to consider is that you’ll still be responsible for paying off the remaining amount on your mortgage. However, this usually comes out of the proceeds of the sale. Unfortunately, if your house has devalued since you’ve bought it, you’ll have to cover the difference yourself.
What happens when you sell a house you haven’t paid off?
When you sell a house with a mortgage, you will still follow a similar process as you would a normal property sale. Your home will by advertised via your estate agent and will go through negotiations with potential buyers as usual.
The main difference comes at the point when ownership has officially been transferred to the buyer and money has exchanged. Once the buyer has paid for your house, your conveyancing solicitor will then use this money to pay your lender including any outstanding amounts owed on your loan and any charges involved for ending your mortgage early. Once your mortgage lender has received all the money due to them, along with everything else which needs to be paid, your conveyancer will give the remaining amount to you.
If the sale price of your house is less than the amount you still owe to your mortgage lender, this is called ‘negative equity’. In this case, all the money from the home sale goes directly to the mortgage lender and you will then receive a bill for the remaining amount.
What is Negative Equity?
Negative equity is when the sale price of your home is not enough to cover the remaining amount left to repay on your mortgage. If this is the case, you will need to pay the difference on your mortgage with any savings you have. If you’re unable to repay the difference your lender will most likely take you to court and order you to pay.
There are however some options around this which are useful to know about.
- A Short Order: If you’ve received a property valuation which states your home will sell for a lot less than your remaining mortgage, you should speak with your lender. In some cases, they may be able to offer a short order. A short order is an agreement that allows you to repay less than the full loan. Alternatively, your mortgage lender may be able to offer you a repayment plan so that you don’t have to pay the shortfall in all one go.
- Bankruptcy: If you have other debts outside your mortgage and you are unable to make your repayments, you may decide declaring bankruptcy is the best option. However, this route should only be considered as a last resort and you should look to discuss your options with a financial advisor, so they can offer you the best advice and support for your situation.
