Speaking with a mortgage lender — or several — before you buy a home shows that you’re a serious consumer, but talking with one of these experts before you sell a house also has several benefits. Here, we explore five areas you can cover with a mortgage lender before putting your home on the market that will protect your best interests as a seller and give you a clear view of your current financial picture so you don’t regret the day you sold your house. Most of the time, homeowners sell their house before paying their full mortgage. That’s typically not a problem, so long as their home is worth more than what they owe on their loan. Before you pull the trigger on your home sale, you need to get a solid sense of your current financial picture and how much you stand to make from the deal after everything shakes out. That starts with determining what it will take to pay off your mortgage. Your monthly mortgage payment has two main components: the principal (the amount you’ve borrowed) plus interest (the lender’s charge for lending you money), according to the Consumer Financial Protection Bureau (CFPB). Most mortgage payments may include homeowners insurance, taxes held in an escrow account, and private mortgage insurance premiums if required by your particular loan. Even with a fixed-rate mortgage, your total monthly payment can change. Although you might keep good financial records, you should contact your current mortgage lender for your payoff amount or the total you’ll have to pay to satisfy the mortgage loan terms, including any interest you owe until the day you plan to pay your loan in full. The payoff amount is different from the “current balance” listed on your most recent mortgage statement (the current balance may not include interest). According to the CFPB, your lender must provide your payoff amount to you, so don’t be shy about asking for it. Once you close on the house, you’ll contact your lender again for your exact take-home pay (accounting for any changes in the months between pre-list and close) and use your home sale proceeds to pay off that debt. Once you know your payoff amount, you can use this simple home sale proceeds formula to better understand how much money you’ll make at closing. Some lenders charge what’s known as “prepayment penalty fees” if you pay off your mortgage sooner than expected, such as within three to five years. Sometimes a prepayment penalty applies if you pay off a large amount of your mortgage at once. The reasoning is that lending institutions count on the revenue they plan to make from the interest on your loan over time, so they’ll issue a penalty for an early payoff to make up for it. Lenders also want to safeguard against the risk that borrowers refinance the loan shortly after they close on a home. “The penalty is based on a percentage of the remaining mortgage balance or a certain number of months’ worth of interest,” according to Investopedia, a New York-based finance education and analysis site founded in 1999. You typically can pay extra toward the principal in small chunks without a penalty fee, but it’s always wise to check with your lender whether your mortgage includes these fees. Prepayment fees aren’t as common in today’s airtight mortgage market, and lenders must disclose prepayment penalties to borrowers upfront. Nevertheless, it can be difficult to keep tabs on all the terms of your loan. A home equity line of credit, or HELOC, is a revolving credit line that allows you to borrow against the available equity in your home, using your house as collateral. That means the amount you owe on your mortgage must be less than your home’s value; typically, you can borrow up to 85% of your home’s value minus the amount you owe, according to Bank of America. You can use this to pay for upgrades and repairs on your home at a lower interest rate than other loans, provided you don’t plan to list the house immediately. You can repay a HELOC within 20 years, but a buyer’s mortgage lender will require all debts, including a HELOC, to be satisfied upon closing so that the home has a clear title. Before you sell your house, it’s a good idea to find out if you’re qualified to buy another home that suits your needs for the future. Otherwise, you could end up under contract with a buyer, only to realize that due to a change in financial circumstances or lower sales price than you anticipated, you’re now unable to qualify for another loan or obtain financing for the dream house you’d been eyeing. In the worst-case scenario, you could have to rent or purchase a place far below your imagined standards when you set out to sell. Before listing your house, work with a lender to get pre-approved for your next loan to ensure you’re still in good financial standing. The pre-approval process involves supplying the lender with your tax returns, W2s, and other verified financial information about your income. The pre-approval letter you’ll receive will reflect the expected proceeds from the sale of your house but will be contingent upon you selling your home.1. Get your loan payoff amount to find out how much you still owe on your mortgage
2. Find out about any prepayment penalty fees on your current mortgage
3. Obtain a line of credit to use for repairs before you sell
4. Get preapproved for a loan to confirm selling now is the right choice
