How to sell a house with a current mortgage and buy another one
You have laboriously taken out a mortgage to buy your first home but now you find yourself having to sell to buy another one? No problem, this situation is actually much more common than you think.
In this guide, we will tackle the delicate issue of selling a house with a mortgage in order to buy a new one: don’t worry, at the end of the reading you will have a clear idea of the way forward.
We know how much personal life dynamics can be intertwined with real estate choices, so we are not surprised to have to deal daily with bewildered buyers who, quite frightened, look for the best solution to not waste time in the new search, taking care to “stay inside it. “Economically.
The possibilities that protect the future buyer in buying a house with a mortgage are fortunately different and vary according to the dynamics that we will deepen together point by point.
Selling a house with a mortgage: 3 possible ways to go
Let’s start by saying that selling a house with a mortgage in progress is certainly feasible, but at least it will be necessary to rely on the right professionals, who will be able to carry on the entire practice protecting you at best, without risking having repercussions of any kind or committing errors dictated by inexperience (or lack of competence in the matter).
In fact, one thing is absolutely important to underline: unlike many other conditions of sale or purchase: in this case, the main prerogative will be to take well-timed steps, following practical precautions to avoid making false steps or, for better say, chronologically wrong. In what sense?
In such situations, it is in fact absolutely advisable to respect the right timing with regard to the search for a new home and at the same time that relating to possible buyers of your home. Imagine if you were to find yourself in the situation of having chosen the new house and not yet being able to sell the “old” one, or vice versa …
This explains why, in this case, more than ever, a real estate consultant can be a useful shoulder during every phase.
After having made this necessary premise, however, let’s get to the heart of the discussion by listing point by point what are the possible solutions to the specific need that we try to dissect in our guide.
1. Extinction of the loan: early or on the deed?
Here we are to analyze the first case, perhaps the most common and known in these situations. It should be noted that there are two different ways to fulfill the repayment of the loan: the early one and the one to be paid at the notarial deed.
- Early repayment: this choice necessarily involves the possession, on your part, of the entire missing sum to cover the total amount of the loan in progress. If you have chosen to want to sell that house to buy a new one, you can opt for early repayment, paying the entire remaining amount in liquidity to the credit institution; in this way, you will be able to proceed in a totally independent way with the new search and also think about taking out a second home loan that you will buy.
- Extinction of the loan at the notarial deed: solution “b”, when thinking about a possible extinction of the loan, could be precisely that of opting for the so-called extinction at the deed. In this way, at the time of the notarial deed, the buyer of the house will deliver a check for the amount equal to the residual amount of the loan, which will be paid to the bank that granted the loan. This in turn will issue a receipt for the extinction and will proceed with the free cancellation of the mortgage.
Choosing to pay off the loan early, or directly at the notarial deed, is undoubtedly the simplest way to follow when dynamics like this are triggered. It is clear that selling a house with a mortgage in progress is not among the simplest real estate transactions, so if you have the possibility, we recommend that you proceed with extinction and then release yourself for the new search.
But what happens to those who do not own a sum to be paid in liquidity? Fortunately, to be able to complete the sale and new purchase operation with a mortgage in progress, there are other ways, equally valid.
2. Acceptance of the mortgage: it could prove to be a valid alternative
A second but equally valid possibility when you decide to sell the house with an ongoing mortgage is that of the now-famous take-over of the mortgage.
What is it about? In a few simple words, it is a question of finding a buyer interested in buying your property for sale who, at the same time, may also be interested in paying the installment of your mortgage to buy a house.
It is clear that to successfully complete the loan acceptance operation, it will be essential to find a buyer who agrees to keep the terms and conditions of the current loan unchanged. In fact, this is precisely one of the objections that often block this kind of operation: new buyers who could possibly obtain a mortgage from scratch with all the current benefits (rates at historic lows), do not always accept taking over a mortgage that perhaps, having been stipulated years ago, it provides for non-advantageous rates and difficult conditions for each installment payment.
This hypothetical objection is absolute to be considered and not marked as irrelevant: remember that those who can access a mortgage today will undoubtedly have tax breaks and excellent rates, practically the lowest ever recorded.
However, know that despite the possible objections in this regard, finding buyers interested in buying your home and also taking on the remaining loan to be paid, is far from impossible, so do not be discouraged.
How is a mortgage takeover formalized? First of all, before arriving in front of the notary, it will be essential that the bank releases the attached releases.
First, it will be necessary for the bank to certify that the hypothetical new owner has all the requisites necessary to take over. This step may take a little while, but if the answer is positive, it will mean it will be worth the wait.
After the necessary checks,
A document will be needed certifying that from that moment on the old owner (ie you) is released from that current loan; otherwise, in fact, the credit institution could, in any case, retaliate against the old owner when the new one should be in arrears.
3. Mortgage bridge: this unknown …
As a last possible choice for anyone who needs to sell a house with a mortgage in place, here we come to talk about the so-called “bridge mortgage”, which to be honest has not yet fully taken root in the financial-real estate choices of Italian families. What is it about?
A financial solution already widely used abroad, has also taken hold in Italy for some years. Basically, it is a short-term mortgage, a solution that provides for the payment of installments for a maximum duration of 24 months that cover a maximum of 60% of the value of the property. This operation allows the owners of a house to buy another without this being a second home (since the intention to sell the one already owned has been expressed). Within 24 months, the requested loan will be repaid with the sums of the property sold and you will remain the owner of only one property.
Probably easier to do than to say, we assure you that if your real estate consultant is prepared and a little avant-garde, he will be the first to explain to you and then propose that of the bridging mortgage as a valid alternative.
Mortgage: Before proceeding with the sale, remember to remove it!
Whichever way you choose to be able in the best way to sell your home with the existing mortgage, you must know that you will in any case have to make sure that you relieve the property from pending and mortgages.
In fact, it happens that the property could be burdened with a mortgage from the first loan, which is why it will be essential to inquire with the reference bank on the matter.
If you do not pay attention to this operation, legally when you take out a new mortgage, the bank will apply for a second-degree mortgage. A cumbersome passage that would be better resolved upstream and not after the game is over.
This is why it is very important to know that you have to eliminate the hypothetical first degree on the house you are selling.
Selling a house with a mortgage: interest and penalties
After having adequately investigated the topic of all the possible ways to sell a house on which a mortgage is burdened, let’s focus on the possible penalties and the interests that generally take place with the stipulation of a loan.
In fact, it is clear that by unnaturally forcing the term of a mortgage, you will have to deal (in every sense!) With interest and possible penalties. Notwithstanding that, even in this case, it would be advisable to be followed by a professional, it is always better to arrive at least summarily ready.
Penalties
The maximum penalty foreseen varies according to the moment in which the extinction is carried out:
- For variable-rate mortgages, the penalty varies depending on when you decide to pay off the loan: it is 0.50% on the residual capital if you do it before the last three years of the loan; 0.20% on the residual capital if you do it during the third to last year of the loan; if you proceed to close the loan during the last two years, you will not have any penalty to pay on the residual capital.
- For fixed-rate mortgages, if they were stipulated by 31 December 2000, the variable rate criteria are adopted. For all other mortgages stipulated starting from January 1, 2001, the penalties are 1.90% on the residual capital if you proceed with early repayment during the first half of the loan; 1.50% on the residual capital if you do it from the middle of the repayment up to four years before closing; 0.20% on the capital if you do it during the third last year. Also in this case, during the last two years, there is no penalty.
- For mixed rate mortgages, the penalties used for floating rate loans are applied, but only if the variable rate amortization plan is in progress at the time of early closure. Those of the fixed rate will apply if instead at that moment the amortization plan is the fixed one. In the hypothesis of mixed rate contracts, the treatments assigned to the two formulas are adapted respectively to the different quotas.
Interests
As for interest, it is good to be aware that the financial amortization plan provides that interest rates are much higher during the early stages, and then go down gradually. Therefore, this aspect must be considered on the basis of the “amount” of the mortgage already paid and how much still remains.
As you can see, then, the possibilities to sell your house and buy a new one despite there is a mortgage in progress, are really many: the advice is always to get the most information about the whole range of possibilities and always get advice from experts on the subject.