If you’re behind on mortgage payments, financially stressed, or on the verge of missing a mortgage payment, you are probably wondering:
Can I get anything out of this house?
It’s not always an easy question to answer because:
- You may not know how much you owe your mortgage. If you’re far behind and fees are being added to your balance, it may be difficult to estimate how much you owe on the mortgage.
- You may be receiving multiple documents from different parties (like your lender and a “trustee”) with conflicting information about how much is owed on the mortgage.
- It may have been a long time since you had the property appraised so you have no idea the value of your home.
- You may not know ALL of the creditors who have gotten an interest in your home as time went by. Over time, if you had credit card debt, personal judgments, tax liens, L&I liens, child support liens etc. that got attached to the home, you may not know who the creditors are or how much is owed.
Your lender may be telling you that “it’s time for you to decide what to do with the home.”
They may have even sent you a document saying that you are “eligible for a short sale” which leaves you wondering:
- What’s a short sale?
- Do I have to complete a short sale just because I’m behind on my mortgage?
What’s a Short Sale?
A short sale is a sale of your home when the value of your home is LESS than you owe on your mortgage. A short sale requires you to get permission from your bank to sell the home for less that you owe.
It’s confusing to suddenly receive a document that mentions a short sale without any further explanation. You likely need an answer to this question:
Can’t I just sell my home, receive money, walk away, and move on?
The answer to this question comes down to whether you have equity in your home or not.
Equity in your home
Equity means that your home’s value is high enough to pay off your mortgage AND have some cash left over after you sell your home.
- A home with equity can be sold WITHOUT having to do a short sale and without the lender’s permission.
- A home with equity WILL give you money at the end of the sale and allow you to walk away from the entire situation, pocket your funds and avoid foreclosure.
5 steps to determine if your property has equity
Step One
Figure out how much you owe on your mortgage(s)
To figure out how much you owe on your mortgage, you will likely need to order a payoff quote from your bank.
A payoff quote is a statement prepared by your mortgage lender that will have the number needed to fully pay off the mortgage in full.
Steps to Order a Payoff Quote:
- Call the number for your bank (found on your mortgage statement) and tell them you would “like to order a payoff quote.”
- Provide the bank a valid fax number or email address for the bank to send the quote to once it is prepared AND ask the bank to give you a fax number or email address where you can send a written payoff request to after the call (if they tell you don’t need to follow-up in writing because they’ve handled it on the call, don’t believe them!). Still request the quote in writing even if they tell you they’ve got it taken care of.
- After you call, draft a “payoff request” in writing that includes your full name as it’s listed on the mortgage, your loan number, your property address and the date.
- The language in your payoff request should say: “Please send a payoff quote good for 30-days to:_____(insert your address, fax number or email address).”
- Fax the written payoff request to the number the bank gave you.
- Call the bank every 48 hours to confirm that the payoff request is being worked on.
- If the lender has not produced a payoff request within 7 – 9 business days, something is wrong. Call the lender back and request to speak with a supervisor.
- Make sure you’re requesting a payoff quote for everything that is attached to your home. If you have a 2nd mortgage or additional judgments, contact each creditor separately and request a payoff quote from them.
(Note: You may be able to request a payoff statement if you have a lender that uses an online portal. Lenders such as SPS, SLS, PennyMac, Rushmore, Planet Home Lending, Bank of America, Wells Fargo, Key Bank etc. all have online portals that a homeowner can use to make this request through the portal).
Step Two
Figure out the value of your home
Once you have your payoff quote(s), you need to figure out the approximate value of your home.
You can always reach out to a real estate agent in your area who will come to the home and provide an estimated fair market value analysis of the home. Most real estate agents are happy to do this at no cost to help you understand the value of their home.
If you’re not ready to speak with a realtor yet, use the online resources below to help you estimate the value of your home.
- Zillow: https://www.zillow.com
- Redfin: https://www.redfin.com
(Please understand that the websites below have no information about the actual condition of the home or the interior of the home. These things can drive the value in either direction but the online resources can be used as a good starting place to understand the general value in the area the home is located).
Step Three
Calculate your estimated closing costs
There are always closing costs associated with the sale of real estate. Common examples of closing costs that you will have to pay include property taxes, escrow fees, title fees, excise tax and any minor utility charges so it’s good to factor in 2% – 3% of the approximate value of your home in closing costs.
If you’re going to use a real estate agent to help you sell your home, you will likely be paying them a commission of around . Closing costs plus commissions typically average around a total of 8-9% of the selling price of the home.
Here is an example:
- If the approximate value of your home is: $250,000
- Estimate that you will need to pay 8% in total closing costs: $20,000
Step Four
Add your closing costs to the number needed in the payoff quote to get your TOTAL AMOUNT OWED
Example:
Payoff Quote says you owe: $100,000
Closing Costs are estimated at $20,000
The total you will have to pay to sell your home is: $120,000.
Step Five
Subtract the total amount owed (from Step 4) from the approximate value of your home (Step 2)
If the approximate value of your home as figured out in Step 2: $250,000 and the total amount owed as figured out in Step 4 is: $120,000 – your home has equity.
Because $250,000 is much greater than $120,000 – you can estimate that you will walk away with approximately $130,000 from your sale.
FAQs about determining your home’s equity
What should I do if I do NOT have equity in the home?
If you do not have equity in the home, don’t worry. You can still sell the home through a short sale. A short sale is a process where your bank approves you to sell the home for less than the home is worth and settle your debt “short.”
If this describes your situation, you should get help as soon as possible. The short sale process can be overwhelming and there are attorneys and real estate agents who specialize in this area who can help you.
What should I do if it’s not obvious whether I have equity in the home – meaning, when I run my calculations, I’m very close to dropping below the equity line?
It is not uncommon to complete the steps above and then feel like your equity is borderline and contingent on how much the home sells for. In this situation, it’s best to reach out to someone for help as soon as possible so you can get a realistic valuation of the home based on the home’s condition.
If you reach out for help soon, you may be able to list the home high – meaning, you may be able to try to complete an equity sale first and then switch to a short sale if you can’t bring in a high offer. You should get going on this soon – contact someone who can do a mortgage relief analysis for you so you know how much time you have and so you don’t waste time that you could use to search for a high offer.
What if I am in default, in foreclosure or about to go into default?
You can likely still sell your home but you should have a mortgage relief analysis completed as soon as possible so you understand how much time you have. You can sell your home while you’re in default even if you have a foreclosure auction date on the home but it’s important that you understand your foreclosure timeline so that you don’t run out of time.
What if I can’t figure out how much I owe on the home because I don’t know all the creditors who are attached to the home?
This would probably be a good time to contact someone for help so they can help you locate your creditors. If that’s not an option for you, you should order a Title Report of your home as soon as possible – this document will tell you every creditor that needs to be paid when you sell your home.
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