There should be several problems selling your home if it’s a first and second mortgage on it. However, home sellers must be aware of the process and any of the few potential issues that might arise. Yet, homeowners do not need to be too concerned, since the existence of a second mortgage prohibits nor inhibits most home sales. Declining home values can at times cause sellers distress because their equity shrinks. Homeowners with comprehension will make more successful earnings.
Characteristics
While most second mortgages have been designed differently compared to classic original mortgages, legally there’s very little difference. From a legal standpoint, any mortgage recorded after a second loan is a second mortgage. However, lenders assemble second mortgages as either home equity lines-of-credit (HELOCs) or shorter duration, higher interest rate, full disbursement mortgages for homes.
Function
When selling a home, a second mortgage, regardless of the homeowner’s utilization of their funds, reduces the seller’s cash received at the closing of the sale. A second mortgage, however, should not prevent or disrupt the sale. After the title company, escrow agent or attorney prepares the closing documents, they simply factor in the next mortgage payoff amount in the final distribution of funds to the vendor.
Effects
A second mortgage ought to have little if any impact on a homeowner’s ability to sell her home. While the effects on buyers are nonexistent, sellers need to pay off second mortgages just as they need to pay off first mortgages. Sellers must deliver their property free of encumbrances, including any outstanding loan balances, to qualified buyers. The closing agent (escrow company, attorney or title company ) should collect the first and second mortgage payoff amounts and be certain that the exemptions are all eliminated from the sold property.
Considerations
Homeowners need to consider two potential issues when selling a home with a second mortgage. First, you should reexamine your next home mortgage terms to learn if there is a prepayment penalty associated with your note. Like most original mortgage loans, a few second mortgages have prepayment penalties that require extra fees should the loan be repaid during the first couple of years (normally up to 5 years) of its existence. In case you’ve got an active HELOC and you’d like your lender, you might want to go over another similar loan with a new home. Secondly, be sure your house’s worth is sufficient to repay both the first and second mortgages. During down markets, loss of real estate values may pose problems for sellers.
Significance
In the majority of situations, having a second mortgage won’t lead to problems if you sell your home. However, the essential payoff could be important if you need to replace the loan after you purchase a new home and when interest rates have increased since you obtained your current second mortgage. In case you require a second mortgage and your own fiscal situation (credit score or employment) has worsened, you may not qualify for a new loan. In cases like this, an otherwise insignificant issue, which should not interfere with your sale, may come to be extremely important to you.