How to Sell a Home with Two Mortgages

Planning to sell your house, but don’t know how will the second mortgage influence the sale? Stop worrying. There’s almost no difference between selling a building with a mortgage and selling one with two mortgages.

If you need to sell your house, find a real estate agent and start the procedures. The second mortgage isn’t going to influence the selling process. The only difference comes from the fact that you’ll get less money in the end, due to having two debts to pay. Let’s take a closer look!

A Second Mortgage Doesn’t Disrupt the Sale

Your second mortgage shouldn’t influence the selling process. Basically, you must follow the same steps as if selling a normal home (with one mortgage). Which means:

• Find a real estate agent to oversee the selling – nine in 10 Americans use a real estate agent to sell their homes; don’t feel tempted to do this on your own. Selling a house (with or without mortgages) is an exhausting process that includes negotiation, marketing, tons of paperwork, and signing contracts – to mention a few. At the end of the selling, you’ll see that the agent’s commission is worth every cent.
• Calculate your current mortgages payoff – this can help you understand how much money you need to cover your debt. The second mortgage can influence significantly the amount you need to close the liens, due to a higher interest rate and prepayment penalties. Make sure you consider all fees and taxes you have to pay. Because, when you sell your house, the buyer must receive a ‘free and clear’ title to it.
• Check the market price of your home – your real estate agent should determine the fair price to ask for your home. Unfortunately, you don’t get to set the price depending on how much you need to pay off debt. The market price is calculated comparing transactions from the past 6 to 12 months – prices of properties in your area with similar features to your home.
• Put all paperwork in order – when you list your home, you should have all mortgages paperwork in order. This can help you accelerate the process of selling once you have a buyer.

In simple words, the second mortgage influences only on your budget. And it gives a little extra work to your real estate agent and the title company, as they’ll have to prepare loan closing documents for two mortgages.

What If The Market Sale Price Is too Small?

Depreciation put you in the situation to list the house with a price that doesn’t cover all your expenses. In this case, you need to find alternatives, as you can’t sell a house that has any lien on it.

The first option is to wait until you can get a better price. This strategy works in both directions at the same time. The market price of your property will grow, as your debt gets smaller – because you keep making payments on your mortgages.

However, this option requires time, as prices in the real estate industry grow at very small rates. If you’re desperate to sell your home, you need to come up with a different plan.

A second option is to increase the value of your property. Here are some ideas that could help you:

• Repair the external wall (and replace any damaged panels) – it gives your home a fresh look and helps you create a good first impression among potential buyers.
• Enhance the yard – a beautiful yard indicates that the owner takes good care of the property.
• Upgrade the kitchen or one of the bathrooms – a comfortable kitchen can change the appearance of the entire house. On the other end, many home buyers are looking for homes with elegant and fresh bathrooms.
• Fix the roof – it’s a big investment, but it could increase considerably the value of your property.
• Change the flooring – a new floor makes the house look modern and secure.

Discuss with your real estate agent about possible changes that could generate a market price boost. Your agent knows the insights of this industry and could give you precious advice on what investments can bring you more cash. It’s obvious that almost no one wants to buy fire damaged homes or properties with flaws in the foundation, but you need more accurate details to know where to point to sell for a better price.
The third option is to cover the difference from your pocket. If you can’t wait long enough to obtain a better price, you should consider paying the difference to pay off the second mortgage.

If you can’t afford such a financial effort, you can contract a short sale with your second mortgage lender. In this case, the bank or financial institution accepts less than the full payoff for your second mortgage. Then, you discuss alternative credit options, to be able to pay the rest of the debt. For this option, having a good credit score is essential if you want to contract a new deal with similar conditions like the old one. If your credit score is lower or you have a smaller income, you risk being rejected for a new loan.

To Wrap It All Up

Selling with one or two mortgages is a normal thing on the American market, as many of these loans are 30-year agreements. Yet, as with all transactions, you must do the math and see whether you can get some profit out of this sale.

Selling a home with two mortgages isn’t different from selling a property with a single lien. The main discrepancy stays in your pocket. Listing for a too small price can have long-term effects on your budget, so analyze all options before deciding to sell your house.