If you’re trying to sell your home to buy another, you have more to consider than just getting out quickly. Your home’s final sale price will affect your ability to buy your next house. It could also have additional financial repercussions.
You probably still owe money towards your current mortgage. However, as you are preparing to purchase your next home, you are budgeting a higher monthly payment. This results in one of three situations happening:
- You still owe on your first loan, but will probably break even. Most people don’t live in a home for the 30 years necessary to pay off a standard mortgage. However, just because that is the case, it doesn’t mean you won’t break even when you sell your house.If you haven’t kept records of how much you’ve paid down on your mortgage, give your mortgage lender a call. They’ll tell you where what you own on your home. Make sure that you calculate in the interest, as it will be your “barometer” for what it requires to break even.
- You actually owe less than what you owe and so will have equity to roll over. If you’ve lived in your house long enough, you might actually owe less than your home is worth. That leaves you with positive equity. Once the sale is complete, you will receive any proceeds. Then, you can apply that amount towards the down payment on your next loan.
- You owe more than your home is worth and will take a loss. Sometimes, homeowners find themselves in a situation where the must sell a home they are “under water” in. If you find yourself in this position, you cannot roll the negative equity into your next loan. Lenders don’t allow this. The reason is because it encourages overspending on properties and positions homeowners for poor outcomes later.Instead, you’ll pay off the remaining amount with savings or borrow money to pay any amount due at closing. Financial advisors urge people to avoid selling homes with negative equity unless their only options are bankruptcy or foreclosure.
It’s vital to ensure all your financial ducks are in a row before putting your house on the market. Before you hang out your for sale sign, do everything you can to position yourself in a positive selling situation. This includes taking into account market conditions, your personal finances and a realistic budget for your next home.
Make sure you read the other articles in our Home Selling Series:
Check out all of our posts in our home buying and selling series!
The blog and its opinions are expressly that of its author and do not convey the opinions or strategies of the Credit Union and should not be considered financial advice. CommunityAmerica’s Mortgage offers are subject to credit approval and terms may vary based on conditions.