Behind on payments. A past due bill with money and a yellow note pad.

Posted on May 2, 2022 by in Uncategorized

How to sell your home if you are behind on payments

Behind on your mortgage payments? Don’t panic, even if the situation doesn’t look like it will improve any time soon. Depending on your circumstances you may be able to sell your house, escaping your debt while potentially earning a profit from the sale. Here are the things you need to know to get it sold! 

Foreclosure – what is it and are you at risk? 

The first question you need to ask when you want to sell a home while behind on mortgage payments is: has my lender foreclosed on my home yet? 

The foreclosure process is a lengthy and painful legal procedure that allows your lender to take your house for failure to pay your loan balance. Foreclosure typically begins the minute you fall behind on your payment. This early period is called pre-foreclosure and you may receive a foreclosure notice in the mail. Again, don’t panic! 

The law requires you to be more than 120 days late on your mortgage before your lender can reclaim your home to recoup the money from their loan. While a few months is a narrow window to sell your current home, especially while finding a new place to live, it’s far from impossible. 

However, you should keep in mind the fact that a foreclosure does more than force you to leave your home. It also damages your credit score, which can increase future interest rates, or even make it impossible to qualify for future mortgages for many years. It’s worth expending every effort to avoid a foreclosure. 

Understanding your loan balance

After determining your risk of foreclosure, the next question you should seek to answer is: what do you owe on your mortgage? Most conventional home loans have a 30 year term. During that time you pay a set balance, plus interest. This balance is called the principal. Your principal is the amount you will need to pay-off in order to satisfy your loan. 

Additionally, when paying your mortgage early you may incur what is called a “prepayment penalty”  this penalty is usually a percentage of the interest payments you would have made on your loan if it had been allowed to mature to its full term. Because you are paying early, your lender wants to ensure they make something on the deal. Be sure to ask your lender about prepayment penalties in order to fully understand how much you will need to pay to satisfy your mortgage loan. 

Discovering your equity

Once you understand your loan balance, the next step is to get an appraisal to understand how much your home is worth. You may not want to expense an official appraisal, as most buyers will be required to pay for an appraisal in order to qualify for their own loans. However, most real estate agents can give you a good idea of your home’s value, and can help you determine a listing price that would give your home a strong chance of selling. 

As long as your home is worth more than your loan balance, you are in great shape! You may have to sell your home on a short timeline, but there aren’t any other major roadblocks. 

You can list your home the traditional way, by hiring a realtor, making repairs, staging, and showing the home to potential buyers in the hope to earn top dollar, increasing your profits. However, this is risky, as most traditional home sales take months to complete, and any issues that arise during that time could leave you exposed to the risk of foreclosure. 

The other option is to sell your home for cash to a real estate investor. A company like Duval Home Buyers can provide a cash offer, without inspection contingencies, and can even close the sale in as little as a week. This can be a great option for those facing foreclosure on a tight timeline. 

However, if you find that you owe more on your home than it is worth, you may find yourself in a much more difficult situation. 

Short Sale

If you owe more on a home than it is worth, and you fall behind on your mortgage payments, your options will be limited. The easiest and most likely way to sell your home in this situation, is a short sale

In a short sale, you work with a buyer and your lender to prove that the home is worth less than your mortgage balance. Your lender will then determine if they are willing to let you sell the home at a loss. 

If they approve the short sale, you’ll be able to satisfy your mortgage balance and escape future payments, even if your home doesn’t cover the full amount of your balance. But this requires your lender to agree to the short sale. If your lender feels they can recoup more of their losses by foreclosing, you will have a difficult time convincing them to allow a short sale. 

Mortgage Forbearance and Loan Modifications

If you find that you can’t sell your home because the bank won’t approve a short sale, or you can’t find a buyer in time, you may have other options available such as mortgage forbearance or a loan modification. 

Mortgage forbearance is typically awarded whenever there are outside circumstances such as disaster or disability that have resulted in your failure to pay your loan balance. In mortgage forbearance, your lender gives you a grace period in which you don’t have to pay your mortgage. It’s a temporary break, and not a long term solution. 

A loan modification is an agreement with your lender to temporarily change the terms of your mortgage loan. This might be an adjustment of monthly payment amount or a few skipped payments. Typically your lender will add missed payments on to the back end of your principal, so don’t expect to get away untouched.