What happens when you sell a home??

Question

My boyfriend thinks that when you sell your home, if you still owe on your loan (which MOST people do) that you have to pay off the loan with your OWN money!! I told him that's not how it works. That when the buyer is approved the bank exchanges the money and if you happen to sell it for more than you bought it for that money is your gain. He doesn't believe me!! He thinks he can afford to own a home, but not sell a home. Am I right about not having to pay off your loan with your OWN money before you can sell it.

Answer 1

Maybe you're misunderstanding your boyfriend. Perhaps he may be trying to tell you the property has depreciated in value and he owes more for the property than it is actually worth. He doesn't want to walk into a closing with money in order to sell his home.

Answer 2

When the house sells, the money from the buyer's loan pays off what is owed on the seller's loan, and anything money over that amount is profit for the seller and is his/hers to keep.  I think this is what you were saying.  For example, the owner owes$100,000 on their loan, and they sell for $150,000.  The buyer's loan pays off the $100,000, and the extra $50,000 is for the seller to keep.

Answer 3

The loan is a lien against the property, so when you sell your home, the lender will automatically get the money that is owed to them as part of the proceeds of the sale. For instance, if you sell your home for $300,000 and owe $100,000, your net proceeds will be $200,000 to put toward the purchase of your next home with the lender taking their $100,000 amount due to them.

FYI, when your house is worth $300,000 and you owe $350,000, that's what is referred to as being "upside down" in the property, meaning you owe more than the property is worth.

Answer 4

The majority of people who have already answered are correct.  Any amount owing on the loan is taken by the bank at settlement.  Anything that is left over is yours.

Don't forget that there can be additional money to pay upon settlement of the sale in addition to the amount owing on the loan.  For example real estate agent commission, solicitors fees (if you use one and I recommend that you do), any outstanding rates or water usage on the property.  All of these expenses are usually taken at settlement and then anything that is left over is yours.

If you need any further advise, speak with a Solicitor, Conveyancing Officer or Property Paralegal.

Answer 5

is he just having you on cos he doesn't want to sell a place :)

the bank takes the money owing first and you get whatever is left over. If there is not enough to cover the amount of the loan (eg. because the housing market has taken a nosedive) then you have no home and you still owe the bank money - this is a big problem and ppl may end up declaring bankruptcy.

Answer 6

When you sell it you do pay off the old mortgage with the proceeds from the sale.  If the mortgage is more than the sales price (almost never used to happen but happens alot now) then the bank must approve the sale and they take a loss on the difference (called a short sale).  Anyhow, one way or the other, to sell a house you are going to have to pay off the old mortgage.  

There is an exception to this whereby you sell the place (exchange title) and the new buyer doesn't pay the mortgage off but rather keeps paying it themselves.  If the bank allows this then thats an assumable loan and the bank just keeps taking payment on the mortgage from the new owner.  If you do this without telling the bank, then the bank will have the option to call the mortgage (and expect immediate complete payment) or foreclose on the property and take it back themselves.

Answer 7

Your boyfriend is mistaken.  If this were true, most people could not afford to buy/sell property.  If you sell your home for $300,000 and you owe $200,000, what happens is once the property has been transferred, the closing agent pays the lien holder $200,000 and then the seller nets the $100,000.  The 100K are called proceeds.  This is a very common practice.