Selling Your Home? Here is What You Need to Know
Happy couple outside a house with moving boxes. Couple are relaxed and leaning on cardboard boxes in casual clothes. Holding a sold sign. House door is visible in the background.
Maybe you have outgrown your current home or you just accepted the job offer of your dreams but now you have to move across town! Whatever the reason may be for your need to sell your home, we know that there are a lot of questions that you might want to know when it comes to your mortgage and selling your home. We have outlined a few of these common questions for you!
Is there a prepayment penalty?
What is this, you ask? A mortgage prepayment penalty is a fee that a mortgage lender might charge for paying off your mortgage loan early. You are more likely to have this fee if you obtained your mortgage loan before 2008. There are mortgages obtained after 2008 that do charge a prepayment penalty if the loan is paid off within the first three years of the loan. An example of a prepayment penalty fee structure is a six month interest on your balance. If you have $275,000 left of your loan with a 4.25% interest, your prepayment penatly would be $5,483.75. You want to make sure to carefully review your mortgage note where it will explain how your prepayment penalty works or if there is one. Make sure you review your paperwork carefully and ask any questions you may have.
Can I buy a new home without selling my current home?
Maybe you have to move quickly and need to get a new home before you can wait to sell your current home therfore you need to know if this is possible. There are two ways to determine if you can buy without selling. The first way is to qualify for the full financial obligation that will come with owning two homes at once. If you have income to sustain this then you are all set. The second way is to work with a lender who might allow your primary residence’s debt to be excluded in your DTI ratio. This is usually on a more case-by-case basis which would most likely include a signed listing agreement and a detailed sales analysis from your realtor. In order to do this, you must still have a strong financial profile.
Once my home sells, how long until the mortgage is paid off?
If you still have a balance on your mortgage loan this will be paid off when the sale closes. The buyer’s funds will be used to pay off your mortgage loan. This payoff is handled by an escrow company or attorney, depending on the state you live in. This usually happens within one to two days of closing and then you will be sent a final closing statement (along with any net proceeds from the sale) to confirm the payoff.
Are there any tax implications when I sell my home?
If you recently bought your home and have only lived in it for two years then you would be exempt from paying taxes on capital gains up to $250,000 if you are single and up to $500,000 if you are married. What is a capital gain, you ask? This is your sale price minus selling costs and tax basis. Selling costs are anything that goes into selling your home, i.e. realtor fees, staging, or other closing costs from third parties such as title agencies or escrow companies. A tax basis is the purchase price plus improvements made to the home minus any depreciation that you have taken. Let say you bought a home for $250,000, spent $20,000 to rennovate, you didn’t take any depreciation and sold it for $635,000 using an agent with 5% commission. You also paid $1,800 in closing costs. Your capital gain would be $331,450. If you were single you would have to pay tax on this amount. If you were married you would not have to pay the tax.
It is always exciting when your family grows or when you have an opportunity to move to a new home and we hope that this has helped to answer any of your questions you may have when it comes to selling your home. If, and, when you are ready to talk about obtaining a new mortgage, give us a call, we would love to answer any of your questions you may have.
