What Happens to Your Home Equity Loan When You Sell Your House
Selling a house with a home equity loan requires careful planning to manage your loan and maximize proceeds. Here’s a guide to navigating the process.
Understanding Home Equity
Home equity is the difference between your home’s market value and the balance of your mortgage. A home equity loan allows you to borrow against this value, creating an additional repayment obligation alongside your primary mortgage.
Selling a House With a Home Equity Loan
You can sell your home even if you have a home equity loan. However, the loan and your primary mortgage must be fully repaid at closing. Most sellers use sale proceeds to settle these balances.
Steps to Take:
Review Loan Terms: Check for prepayment penalties and ensure you understand payoff requirements for both loans.
Determine Payoff Amounts: Confirm balances with your lenders and estimate your potential net proceeds.
Hire a Real Estate Agent: Find an experienced agent to assess your home’s value and guide the selling process.
Manage Sale Proceeds:
Proceeds from the sale will first cover your mortgage and home equity loan, with the remaining funds sent to you.
Potential Challenges
Negative Equity: If your home’s value has decreased, sale proceeds may not cover your loans. You’ll need to pay the difference or delay selling until values improve.
Lender Fees: Factor in application fees, interest, and other costs tied to the loan.
Being Underwater: If total loan balances exceed the sale price, you’ll owe the shortfall out-of-pocket.
Increasing Equity Before Selling
Renovations: Strategic upgrades can boost home value and equity.
Regular Maintenance: Preserve your property’s condition to maintain its value.
The Bottom Line
When selling a home with a home equity loan, proceeds are used to repay the primary mortgage and the loan. Plan by reviewing loan terms, calculating payoff amounts, and working with professionals to ensure a smooth process.
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