When you owe a mortgage on your home, you cannot sell your home unless you first pay off that mortgage yourself or arrange to pay off the mortgage on the day of closing with some of the sale proceeds. You must ensure that you pay off the entire balance owed otherwise the lien placed by your lender will remain on the property and prevent the buyer's lender from placing a new first lien mortgage on the home. Therefore, you should begin to pay off process by determining exactly how much you owe on the home.
You can make an in-person visit to your lender's local branch or you can call your lender on the phone. Ask your lender to provide you with a payoff quote for your mortgage with a 30-day per diem. Normally, lenders provide payoff quotes that are valid for a few business days. If you fail to pay off the loan within the timeframe specified on the payoff, the per diem figure shows you how much to increase your payment by for each day after the initial payoff date passes. Lenders only provide per diem payoff figures for 30 days so if you plan to sell your home more than 30 days in the future, you should ask for a payoff quotes nearer to the time. Ask your lender to fax, email or mail you a payoff quote.
Review your bank account. Determine whether you have enough funds to pay off your home prior to selling the property. If you owe a small balance, you could consider paying off the debt with funds from a credit card or revolving credit product. You can also withdraw funds from retirement account although doing so would involve having to pay taxes and a 10 percent tax penalty if you are below the age of 59 ½. Consequently, most home sellers arrange just to have the buyer's funds applied towards the mortgage debt on the day of closing as this enables sellers to avoid incurring credit card interest or tax penalties.
Arrange a closing date for the sale of your home. If the buyer plans on financing the purchase, the buyer's lender should arrange to have a title agent oversee closing. Title agents both notarize loan documents and facilitate the transfer of funds. If the buyer plans to buy your home with cash, you and the buyer should arrange to hire a title agent yourselves to preside over the loan closing. Provide the title agent with your mortgage payoff quote and your account number.
Attend the loan closing. Sign the deed for the property and any other mortgage related documents that sellers are required to sign in your state. Review the mortgage settlement document to ensure that the title agent disbursed the correct amount of money to your mortgage lender. Loan payoffs are normally sent via wire transfer so that the lender can submit a satisfaction of the lien to the local courthouse prior to the new buyer's lender placing the new lien on the home.
Tips & Warnings
- When you contact your lender for your payoff quote, find out whether you have to pay any early payoff penalties. Some lenders require you to pay an interest penalty or fee if you pay off a mortgage within a certain number of years. You should factor any early payoff penalties into the negotiations regarding the sale price of your home to ensure you have enough money to cover your costs.
- If an error occurs and you fail to fully pay off your mortgage, the new buyer will have to contend with the legal issue of having an unpaid lien on the home. However, if you fail to settle the debt, your lender can notify the credit reporting agencies and the delinquent debt can stay on your credit report for up to seven years Therefore, both you and the new buyer benefit from ensuring that the payoff gets processed correctly.
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