Selling Your Home When Behind on Payments: What Are Your Options?

When homeowners find themselves behind on mortgage payments, the looming question often arises: Can they still sell their house? The answer isn’t a straightforward “yes” or “no,” as it depends largely on whether the home’s value exceeds the remaining mortgage balance. 

Navigating this process involves understanding the potential impacts on one’s credit and exploring various selling strategies, including the possibility of engaging cash buyers for a swift transaction. Let’s explore steps homeowners should consider when selling their house while behind on their payments. 

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

5 Things to Know About Selling When Behind on Mortgage

• You can sell your house even if you are behind on mortgage payments.
• Selling may prevent foreclosure and preserve your credit score.
• Explore a short sale if your mortgage exceeds your home’s value.
• Consider cash buyers for a quick sale and to avoid foreclosure risks.
• Consult a financial advisor to evaluate your options effectively.

What Happens When You’re Behind on Payments?

When homeowners fall behind on mortgage payments, they face a critical decision: either sell their home or risk foreclosure. Each scenario presents distinct challenges and consequences, guiding the homeowner’s next steps in the selling process.

Above Water vs. Underwater

When you’re behind on payments, understanding whether you’re “above water” or “underwater” on your mortgage plays a critical role in determining your viable options.

If you’re above water, meaning your mortgage balance is less than the current market value of your home, you have the flexibility to sell your house and pay off your mortgage in full. This scenario often results in a profit and has minimal impact on your credit score.

Conversely, being underwater means you owe more on your mortgage than your home’s worth. You may need to consider a short sale, where you sell your house for less than the mortgage balance with your lender’s approval. While a short sale can prevent the complications of the foreclosure process, it still has financial implications, potentially harming your credit score.

Options Other Than Selling

Homeowners who fall behind on mortgage payments have alternatives to selling their property.

Mortgage Forbearance

Mortgage forbearance offers a temporary reprieve for homeowners struggling to meet their loan obligations, allowing them to pause payments without penalties. When financial hardship hits, such as job loss or medical emergencies, homeowners can apply for forbearance. 

Forbearance is particularly crucial because it can prevent the initiation of foreclosure proceedings, buying time for homeowners to reorganize their finances. While it doesn’t erase the debt, the missed payments are either added to the loan’s principal or spread out in a repayment plan once normal payment schedules resume. 

To initiate forbearance, homeowners must demonstrate their financial distress to their lender. The approval process varies, but typically, forbearance is granted for three to six months, with the possibility of extensions depending on continued financial hardships and lender policies.

This flexibility is a lifeline, allowing homeowners to focus on stabilizing their income without the immediate stress of losing their home.

Modify/Refinance the Loan

Loan modification can adjust your mortgage’s terms, potentially reducing your monthly payments, altering your interest rate, or even extending your loan’s duration. This usually requires lender approval and proof of financial hardship, but if approved, can provide much-needed relief. Refinancing offers a pathway for relief but may not be a feasible option for those significantly behind on payments.

Additionally, engaging with financial counseling services can offer substantial guidance. These professionals can assist in navigating the complexities of loan modification and refinancing. They help you understand the implications of each option and develop a strategic plan that prevents the need to sell your home under financial pressure.

Both options aim to provide homeowners with relief from overwhelming mortgage payments, offering a lifeline during times of economic uncertainty and preventing the drastic step of selling your property.

Selling Your Home When Behind on Payments

When a homeowner falls behind on mortgage payments, selling the home becomes a pivotal option to consider. They can choose from a short sale, a standard sale through an agent or via FSBO, or selling directly to a cash buyer.

Each option has its own processes and potential impacts on the homeowner’s financial situation.

Short Sale

Opting for a short sale offers homeowners a viable route to avoid foreclosure if they’re unable to meet their mortgage obligations. A short sale occurs when a property is sold for less than the amount owed on the mortgage, and it requires lender approval due to the financial loss incurred.

Homeowners must submit a hardship letter and financial documentation, demonstrating their inability to continue making mortgage payments in order to qualify for a short sale.

Engaging a knowledgeable real estate agent is crucial in navigating the complex negotiations with the lender. The agent ensures that all necessary documentation is properly submitted, increasing the chances of a successful short sale.

Although a short sale can still lead to credit damage, it’s generally less impactful compared to foreclosure. In a short sale situation, the seller’s credit may drop 50 to 150 points, rather than the 200 to 300 points associated with foreclosure.

Standard Sale (With Agent or FSBO)

A standard sale can be a feasible option if you’re not too far behind on your mortgage payments. Selling your house through traditional sales channels, either with real estate agents or For Sale By Owner (FSBO), can be a viable strategy. If your home is worth more than your mortgage balance, a standard sale allows you to pay off your lender and potentially profit from the transaction.

Using a real estate agent in such scenarios can expedite the process. Agents understand market conditions and can leverage their expertise to fetch the best price, thereby maximizing the chances of covering all financial obligations and preserving credit scores.

On the other hand, FSBO gives homeowners control over the selling process, avoiding agent fees. However, they’ll want to be adept in marketing and negotiation, especially considering the stakes.

Both options require careful consideration of the local real estate market. Homeowners must be prepared with all necessary financial documents to facilitate a swift sale and should set a competitive price.

Sell to Cash Buyer

Considering the lengthy timelines and potential complexities of traditional real estate transactions, selling to a cash buyer presents a streamlined alternative for homeowners behind on their mortgage payments. This method can expedite the sale process significantly; such speed is crucial for those aiming to avoid foreclosure and alleviate their financial distress promptly.

Cash buyers typically make a cash offer to purchase the property “as-is,” which means homeowners can bypass the time and expense involved in repairs and renovations. This aspect is particularly appealing as it simplifies the entire selling process, making it a financially advantageous choice for many.

With fewer contingencies, the risk of a sale falling through due to financing issues is also markedly reduced, offering a more secure path for those urgently needing to sell their home. Just make sure you work with a reputable cash buyer who also understands the value of your home.  

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Selling Your Home is Possible Even When You’re Behind On Payments

Homeowners behind on their mortgage payments are often relieved to discover that they can still sell their properties—even if they’re on the brink of foreclosure. If the home’s value exceeds the mortgage due, a standard sale might be the best option. Otherwise, a short sale could be necessary. Alternatives such as mortgage forbearance or loan modification offer relief without selling. 

However, for immediate resolution, selling to a cash buyer can prevent foreclosure efficiently, offering a fresh financial start. Understanding the options available to you can help you make the best decision for your financial situation—potentially helping you avoid the sale of your home altogether.