According to recent data, over six million Americans are behind on their mortgage payments. If you happen to be in a similar situation and want to ease your financial burden, you may be asking, “Can I sell my house if I’m behind on payments?”
In this guide, we’ll walk you through how to sell your home when you’re behind, with strategies tailored to different scenarios. Whether your home’s value exceeds what you owe or you’re underwater, there are paths available that could help you avoid foreclosure and move forward with financial stability.
Falling behind on your mortgage payments can be a scary situation Many homeowners facing this dilemma begin to wonder, “Can I sell my house if I’m behind on payments?” The good news is that yes, you can sell your home even if you’ve missed some payments However, the process may be more complex than a straightforward sale.
In this article, we’ll walk through the key considerations around selling when you’re behind on your mortgage, including:
- How much your home is worth compared to how much you owe
- The options available based on your home equity
- Potential impacts to your finances and credit
- Steps to take if you wish to avoid foreclosure
Assessing Your Home Equity
Before deciding how to proceed, you’ll need to understand your home’s equity position – that is, whether your home is currently worth more or less than you owe on your mortgage.
There are two main scenarios:
Your home value exceeds your mortgage debt (positive equity)
If your home is worth more than you owe, this is referred to as having positive equity or being “above water” on your mortgage. In this case you may be able to sell your home through a traditional listing and use the sale proceeds to pay off your existing mortgage debt. This route can allow you to get caught up on missed payments and walk away from the sale with your financial obligations met.
Your mortgage debt exceeds your home value (negative equity)
If you owe more than your home’s current value, this is considered having negative equity or being “underwater” on your mortgage. This makes selling more difficult, since the sale proceeds won’t be enough to cover what you still owe on the loan. If you’re underwater, you may need to consider options like a short sale.
To estimate your home’s current value, get a comparative market analysis from a local real estate agent or use an automated valuation model like HomeLight’s Value Estimator. Comparing this to your remaining mortgage balance will give you an idea of your equity position.
Selling When Above Water
If you have positive equity, selling through a traditional listing may be a viable solution. Here are some tips for going this route:
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Price competitively – Set a price that encourages offers in today’s market. Get guidance from an agent on pricing appropriately.
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Make any needed updates – Small improvements can maximize your home’s appeal to buyers. Focus on the highest value fixes.
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Aim for a quick close – Consider an all-cash offer to streamline the process. Companies like HomeLight’s Simple Sale connect sellers with cash buyers.
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Weigh market conditions – While challenging markets make things tougher, it’s still possible to successfully sell your home.
Selling When Underwater
If you owe more than your home’s value, a short sale may be an option. Here’s how short sales work:
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You sell the home for its current fair market value, even though that’s less than you owe.
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The lender agrees to accept this lower payment and forgive the remainder of what you owe.
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This allows you to avoid foreclosure and shed the debt you can no longer afford.
Tips for completing a successful short sale:
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Hire a real estate attorney familiar with the short sale process. They can help negotiate with your lender.
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Gather documentation of financial hardship to submit to the lender – this is often required.
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Be prepared for a lengthy process – it can take months to get lender approval.
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Consider other options like deed-in-lieu of foreclosure if the lender won’t agree to a short sale.
Impacts to Your Finances and Credit
Selling your home when you can’t make the mortgage payments will affect your finances and credit score. It’s important to understand these impacts as you weigh your options:
Your sale proceeds will pay owed payments first – Any missed payments, penalties, and fees will be deducted from the sale price before you receive any funds.
Foreclosure damages credit significantly – A foreclosure can cause a credit score drop of 100 points or more and stays on your report for up to 7 years.
Short sales hurt credit less than foreclosure – Some lenders will report short sales in a way that results in less credit damage, making this option preferable.
Tax implications – Forgiven debt from a short sale may be treated as taxable income. Consult a tax pro regarding your specific situation.
Loss of home sale proceeds – In a short sale, you won’t walk away with any proceeds from the home sale. However, it releases you from unaffordable mortgage debt.
Alternatives to Selling
If you wish to avoid selling your home, here are some other options to deal with mortgage nonpayment:
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Loan modification – Your lender may agree to modify the loan terms to reduce your monthly payment to an affordable amount. This requires their approval.
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Payment forbearance – Your lender may allow you to temporarily pause or reduce payments for several months while you get back on your feet financially.
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Refinancing – If you qualify with your current credit and income, a refinance could lower your interest rate or extend your repayment period to reduce your monthly costs.
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Rent out your home – You may be able to rent your home and use the income to cover your mortgage payments temporarily until you’re able to sell in more favorable conditions.
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Bankruptcy – Filing for Chapter 13 bankruptcy stops foreclosure proceedings and can restructure debts through more affordable payment plans.
Key Takeaways
The key points to understand when it comes to selling your home if you’ve fallen behind on payments include:
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It is possible to sell your house even if you’re behind on your mortgage, but the process varies based on whether you have positive or negative equity.
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In a traditional sale with positive equity, the proceeds pay off your existing mortgage debt including any missed payments.
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Short sales allow underwater homeowners to sell and satisfy the lender at the home’s current market value, preventing foreclosure.
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Both short sales and foreclosures will damage your credit, but short sales have a less severe impact.
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Work with real estate and legal professionals who have experience with distressed sales to pursue the right option for your situation.
While facing mortgage nonpayment is difficult, understanding these key considerations around selling your home can help you make an informed decision and take the course of action that’s best for your financial and housing goals. With the right support and strategy, many homeowners in this situation are able to move forward and regain financial stability.
Request a mortgage forbearance
Mortgage forbearance lets you temporarily pause or reduce your mortgage payments if you’re experiencing financial hardship. Lenders may allow this option to help you recover financially, but you’ll need to catch up on the missed payments after the forbearance period ends.
Negotiate a loan modification
A loan modification involves changing the terms of your mortgage to make payments more affordable. This might mean extending the loan term, lowering the interest rate, or even reducing the principal amount owed. Your lender will need to agree to this adjustment, but it can be an effective way to regain control over your payments.
If you qualify, refinancing your mortgage can lower your monthly payments by securing a better interest rate or extending the loan term. Although this option isn’t available if you’re too far behind, it can provide relief for those with improving financial stability.
Can I Sell My House If I’m Behind On Mortgage Payments
FAQ
Can you sell your house with late payments?
Delinquency and default can lead to serious consequences, including foreclosure, but selling your home when you’re behind on the payments might be a way to avoid this outcome. Assess your financial status, and understand the implications of selling your home and falling behind on your mortgage.
How many months can you be behind on house payments?
By the fifth missed payment, foreclosure proceedings are usually underway.” In California, you may get a notice of trustee’s sale, which puts your property on the auction block. This is the last stage where you can do something and save your home.
Can you sell your house if you owe mortgage payments?
Yes. You don’t need your mortgage to be fully paid off in order to sell your house. The important thing to remember is your home equity, which is the difference between your home’s current market value and what you still owe on the mortgage.
What happens if you can’t sell your house for what you owe?
When a homeowner owes more on their mortgage loan than the home is worth, a sale of the home cannot generate enough money to pay off the mortgage. In such a situation, lenders allow the homeowner to sell the home without having to pay the mortgage in full. This is known as a short sale.
Can you sell your home if you’re behind on mortgage payments?
If you’re behind on your mortgage payments and don’t see your situation improving, you might be thinking the only way out of this mess is to sell your home. But can you? The short answer is yes —that is, so long as your lender hasn’t foreclosed on your home yet. The foreclosure process begins once you fall behind on your mortgage payments.
Can you sell a house if you owe a mortgage?
Typically, you don’t need to get your lender’s permission to sell your home this way. However, if your home is worth less than what you owe on your mortgage, you’ll need to sell your property as a short sale to avoid foreclosure. The caveat is that your bank has to be on board with this kind of transaction.
How do you sell a home if you don’t have a mortgage?
If you choose to go this route, you’d follow the same steps you’d normally take to sell a home: You’d find an agent (here’s how to find a real estate agent in your area), accept an offer, and fulfill any contingencies before closing on the sale. Typically, you don’t need to get your lender’s permission to sell your home this way.
Should you sell your house if you owe more?
Below is a look at the two most common homeowner scenarios. 1. If the house is worth more than you owe (above water) If your home is worth more than you owe, a traditional sale may provide a straightforward way to settle the mortgage and regain control of your finances.
What if I’ve fallen behind on my mortgage payments?
If you’ve fallen behind on your mortgage payments but would like to stay in your home, there are a couple of ways you can get back on track. You might qualify for a mortgage forbearance, a process where your servicer gives you a temporary break from your mortgage payments.
Can you manage mortgage debt without selling?
Here are several ways to possibly manage mortgage debt without selling. Mortgage forbearance lets you temporarily pause or reduce your mortgage payments if you’re experiencing financial hardship. Lenders may allow this option to help you recover financially, but you’ll need to catch up on the missed payments after the forbearance period ends.