I have a question on how real-estate works out, im having alittle problem understanding the concept. Basically if you purchased a 100k home you use a mortgage broker to offer you the 100k loan for the home. Then through out the mortgage your paying off the 100k and then interest. Ok, I understand that part
What I don’t understand is, lets says you want to sell the home your in, the home cost 100k and you decide you want to sell it, you can’t sell it for profit so you settle with 90k to sell home. When you sell it for 90k, all the money goes to the mortgage company to pay off the principle of the home? Would you then owe 10k to the mortgage company or would that have to be covered by the buyer. Im alittle confused if someone can explain in layman's terms. Thanks.
2006-10-05 07:51:59 · 8 answers · asked by Charlie M 1 in Business & Finance ➔ Renting & Real Estate
You would have to pay the difference out of your pocket to pay the loan back in full.
2006-10-05 07:54:32 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Houses don't typically depreciate - like cars. So, when you move into a 100K house, let's say a few years go by (like, three, for the use of this scenario) - your house will APPRECIATE up to (for instance) 5 % - maybe - this is hypethetical, mind you.
So, now, you're living in a house that you purchased for 100K, but it's worth 105K a few years later. You've also paid approximately 10% of the 30 year mortgage in 3 years as well, so, let's say you now owe 90K, the house is worth 105K. Your equity in the home is now 15K.
You put the home on the market. When you do this, you want to mark up the cost of the home to accomodate for a lower bid on the home. You put the home on the market for 108K - assuming it's in good shape.
After a month or so, a couple decides they can't live without your home, so they offer you 106,500 for the home. There, now you own the bank 90K, you get 106,500 - you have to pay a realtor fee (probably) of up to 3%, which is about 3K - you can make it so that the purchaser pays that (contract), or you can come out approximately 12,500 ahead.
Now you have a little money to put down on the next house.
I hope this makes sense. Rarely - unless you've just gotten a lot of bad advice, and have no broker/realtor - will you take a loss on a home.
2006-10-05 14:59:27 · answer #2 · answered by gatesfam@swbell.net 4 · 0⤊ 0⤋
Every answer here is basically correct. Another option to consider rather than losing money now is to rent the property to someone else. That will allow you to continue making the mortgage payments and at the same time allowing time for the value of the home to appreciate. Some times it makes sense to cough up a chunk of money all at once rather than keep servicing a mortgage, paying utilities, taxes, insurance, upkeep on a vacant house. (If forced to sell due to a relocation) If your monthly cost is $1000 to keep the home and pay all the expenses, it would only take 10 months and you would have paid out the same $10,000 you would owe the lender if that's what it took to sell the house. If your house happens to be in a declining market due to employment or demographic changes, taking a loss now versus hoping things will change is a decision you should make only after consulting with some professionals that are current on your market conditions.
2006-10-05 15:21:37 · answer #3 · answered by larry r 3 · 1⤊ 0⤋
Keeping things simple, when you sell your house for less than the amount you bought it for, then you have to pay the difference to pay off the loan.
In the scenario you described, you borrowed 100K to buy the house. You only got 90K for selling the house. The lender/bank who loaned you the money isn't going to let you off the hook since you still owe them 10K.
2006-10-05 14:58:23 · answer #4 · answered by errant_hero 4 · 0⤊ 0⤋
If you owe more than you try to sell the house, you can't sell the house! Unless you want to pay the difference out of your pocket or the bank agrees to take a loss. When you go to sell a piece of real estate whoever has a loan on the property has control of the sale.
2006-10-05 14:55:41 · answer #5 · answered by Anonymous · 0⤊ 0⤋
100-90 = 10 yes the mortgage company still deserves their 10 and you settled to sell it for less than 100 so you owe 10.
2006-10-05 14:57:56 · answer #6 · answered by Crockett 3 · 0⤊ 0⤋
If you sell your home for less than the payoff owed to your mortgage company, you are responsible for the difference not the buyer.
2006-10-05 14:56:14 · answer #7 · answered by Ms. Cranky 4 · 1⤊ 0⤋
Yes, so never sell it for less than the mortgage.
2006-10-05 14:58:11 · answer #8 · answered by Anonymous · 0⤊ 0⤋