Pay out of pocket: Its not ideal, but you could also pay the lender the difference in cash at closing
This is only feasible if you have the extra cash available and you can’t sell later when the market is better.
Request a short sale: If you need to move and owe more than your home is worth, you might consider a short sale. A short sale is when the lender agrees to reduce the balance you owe on the home to help you sell. Lenders are more likely to allow a short sale if they fear you’ll foreclose on the home, so you’ll have to prove hardship to get it approved.
Short sales are usually priced below market value to ensure a quick sale, and your lender may require an all-cash offer so they can get out of the https://cashadvancecompass.com/loans/payday-loans-with-no-bank-account investment as quickly as possible. In some instances, lenders will require a promissory note, which means you agree to keep making at least partial payments against the debt after the sale has closed. Note that if you sell your home with a short sale, it can negatively affect your credit score and limit your ability to buy another home in the near future.
You are the owner of the home until the day the sale closes, which means you’re responsible for your mortgage payments during this time. The average period of time between accepting an offer and closing on a home is 30-45 days, although buyers sometimes request shorter or longer closing periods. Occasionally (and depending on where your last mortgage payment before closing falls in relation to the closing date), your settlement statement might dictate that the final mortgage payment be paid at closing.
All of your questions related to which party pays for which expenses can be found in your settlement statement, which is also known as a closing statement. As the seller, your settlement statement will include an itemized list of fees and credits and detail your net profits.
Depending on which state you live in, your settlement statement will be prepared by an attorney, a title company or an escrow firm, and your actual closing appointment will be held at the office location of the person preparing your statement.
If you do owe a mortgage payment upon closing, it will be paid from the proceeds of your sale. No funds will actually pass through your hands. The title company will issue checks to all parties who are due money.
Timing your final mortgage payment
As mentioned above, sometimes your mortgage lender will lump your final mortgage payment into your closing, which means you won’t have to pay your normal monthly payment while your transaction is in escrow – instead, it will be accounted for at the closing table.
When reviewing your estimated settlement statement, be sure you know how your mortgage payment will be handled. If you accidentally skip a payment while your home sale is pending, you may be charged a late fee, and your credit score could be negatively impacted.
You’ll only be responsible for your mortgage through the day the home changes hands, so if your settlement statement says you are responsible for paying your mortgage normally during the escrow period, you’ll be refunded any overpayment upon closing
What makes this complicated to calculate is that mortgage interest is paid in arrears (meaning your May interest payment pays for April’s interest), while your mortgage principal is paid in advance (meaning your May principal payment pays for May’s principal). So, depending on the time of month you close, you may be refunded for overpaid principal, but you may owe additional interest.
