There’s plenty to consider before placing your home for sale, but these concerns may be multiplied if you have two mortgages on your home. You might be wondering if you can sell your home at all, and, if so, what special steps you will need to take to make the sale successful. Rest assured that there are ways to sell a home with two mortgages. Here’s what you need to know.
There are all kinds of reasons why a homeowner may have two mortgages on their home. One common one is because the owner, when they bought the house, couldn’t afford the full 20 percent down payment but didn’t want to have to pay PMI (private mortgage insurance) on the property. Ergo, they got what is called an 80-10-10 loan, where the buyer provides a 10 percent down payment, gets a main mortgage for 80 percent of the home’s selling price, and gets a second mortgage for the remaining 10 percent of the down payment. There’s nothing wrong with this type of arrangement, as long as you can make comfortable payments on both loans each month.
Selling a home with two mortgages is exactly like selling a home with one, as long as the value of the house is higher than the sum of the two mortgages’ outstanding balances. In this case, the home sale will pay off both mortgages, and hopefully you even have a bit of equity and get cut a check by the title company for the remainder of the proceeds.
If, however, the home’s value or selling price comes in below the sum of the mortgages, you will have to make some hard decisions. You will have to either come up with the missing funds out of pocket to cover the full balance of the loans, or - and this is the more common outcome - you will have to get the second mortgage lender to agree to a short sale on their portion of the sale. This is not a decision to be taken lightly, as it will affect your credit. You also will usually have to provide proof of some kind of hardship to get a short sale approved, such as a job loss or medical bills. If neither is an option, you might have to reconsider putting your home up for sale. Housing markets fluctuate, and there is always the possibility that your home will be worth more in a few years if you can sit it out and, in the meantime, make improvements on your home.
Having two mortgages on your home need not be a big deal when it comes to selling your home, as you can see, but it depends on a lot of variable factors. A qualified real estate agent can work with you to explore your options and help make the best decision for your situation.
