Do you sell your home and have Helock? Be prepared to say goodbye to both of you. If the property changes its hand as an aggressive debt tied to the property, the home equity credit line must be repaid.
This may sound tricky, but it is actually very doable with proper preparation. To ensure smooth transactions, here are the steps to sell your home with HELOC:
If you have a HELOC, can you sell your home?
When you have a Home Equity Credit Line (HELOC), there’s nothing to prevent you from selling your home. With a good HELOC balance, you can’t list the properties for sale and accept purchase offers.
However, the house is still not allowed to change its title or ownership with a lien. This means that your HELOC debt must be resolved either before or during the closure. In many cases, you can arrange to immediately repay the balance being paid to your HELOC from sales revenue, just like your mortgage.
Why do home sellers have to pay back their HELOC?
HELOC is essentially a loan, backed by the fairness you have in your home. And when your home sells your home, the unpaid obligations secured by your home must be settled. This includes major mortgages along with HELOC.
During the closure, the title company or closing lawyer will order a payoff statement from Heloc’s lender. This document provides detailed information on the amounts required to resolve HELOC. This includes unpaid interest and fees. But you don’t need to write a check. Generally, the total is deducted from the money HomeBuyer is paying you.
“This is roughly the same as a first-class mortgage. Your compensation will be repaid. All the revenue left after payment is then the seller,” says Tom Hutchens, president of Angel Oak Mortgage Solutions, an Atlanta-based correspondent lender.
Once sales are over, the credit line will be closed. Your lender will confirm that HELOC has been repaid and release the property lien.
Complications when closing HELOC when you sell your home
Solving HELOC may sound easy, but two factors can complicate the process. It’s about the fairness you have in your home and whether there are prepayment penalties for the loan.
You’re underwater
When you sell your home, revenue is first directed towards repayment of your major mortgage. The money left afterwards will be directed towards repaying any other debts protected by your HELOC and property.
But what if you rent more to a house than what is known as negative equity, or underwater/upside down, than it is worth its present time? “If someone was in the water when they sold their house, instead of making money, they’d bring in cash to make up for the difference,” says Hutchens.
And what if you don’t have the cash to make up for the difference? In that case, there is a problem. You might try to shorten. There you are allowed to sell your home with less home than your outstanding mortgage, but perhaps both the mortgage lender and the HELOC lender will have to agree.
Other options that may make more sense:
- Wait for home prices to sell until they rise in your area and give them time to build or rebuild your home equity stakes
- Wait until you save enough money to cover a good HELOC balance
- Strengthen HELOC repayments to reduce the balance
- Take personal loans to cover HELOC balance
Lenders have prepayment penalties
A HELOC advance penalty is the fee charged by the HELOC lender if the debt is resolved prior to scheduled use. These penalties will refund the lender for the interest they would have earned if you had a full repayment period. Also known as “early termination fees,” the penalty can be 2-5% of the loan or a flat rate.
Although not as common as many years ago, advance penalties still exist, especially among traditional banks. If you are unsure if you have a loan, contact Heloc Lender. Like all aspects of a loan, you can negotiate a contract, but there is no guarantee that the lender will agree to.
Helock’s conclusions when selling your home
When you decide to sell your home, your Hellok’s life ends – but it doesn’t just disappear. You must repay the funds you withdraw, along with any profits.
Knowing payoff balance and where to stand in advance will help you avoid surprises when you close. The key is to ensure you are comfortable handling all the costs of selling your home without being caught short.
Home sellers need to understand the balances they have on their initial lien mortgage and home equity credit lines,” says Hutchens. “They need to make sure they want to sell their property. They are still in a positive situation with the closure table. Or, if not, understand how upside down they are before proceeding with the sale of the property.”
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Additional Reports by Mia Taylor
