Mortgages are known for being the one thing that thrusts us into adulthood. But why don’t people sit down and go over everything that will happen if you sell your home before you pay it off. So before selling your home or applying to buy a new home, let’s talk about what you could face if you sell your home before the mortgage is paid off.
A prepayment penalty is a fee banks or lenders charge for paying off your mortgage. These fees are more likely to apply if you had a mortgage before the 2008 financial crisis, but can also be applied to new mortgages if your home is paid off within the first three years. This penalty is in the close of a mortgage contract and applies if the mortgage is paid off within a certain amount of time. A penalty is based on the percentage of the remaining mortgage balance or number of month’s worth of interest. In other words, if you pay off your mortgage in five years or less after getting a mortgage, even if it is because you sell your home, you get a penalty.
Selling Your House with a Mortgage
When you sell your home, most of its profits will go to the bank in order to pay off your existing mortgage. Most sellers will not even see the money as it is handled by the escrow company or the attorney that helps to finalize the sale. This process usually takes one or two business days after closing and you’ll receive a final closing statement along with the remaining amount that confirms your mortgage has been paid off. After you have calculated the taxes and your net profit from your house, it is time to get pre-approval for your new home. To get pre-approved, you will need to provide the lender with your estimated net proceeds so they can target the down payment available. Talk to your tax adviser to see how much your estimate net sale proceeds will be.
Mortgages can be scary, but they don’t have to be confusing. By being an informed consumer, you can find the perfect home for you and your family while not paying too much for your home.
Buying a Residential Property with Clagett Enterprises
At Clagett Enterprises, we have extensive experience serving the greater Frederick area and Western Maryland, since 1987. Our team is a full service real estate company that’s ready to help you with your real estate needs. Speak with a Clagett professional at 301-665-6009, or request a proposal for preventive maintenance here.