One of the most frequently asked questions about buying and selling real estate is whether a house can be dealt with a mortgage, especially after the recent modification of the Mortgage Law. The answer is that it is possible and, in addition, there are several ways to do it. There are usually buyers looking for mortgaged houses, many more than you imagine. You have nothing to worry about: selling a home with a mortgage is a frequent and more straightforward operation than it seems at first glance. Moreover, it is even possible to sell your house to the bank to buy another.
Keep in mind that many long-term mortgages have been granted in Spain: twenty, thirty, and even forty years. There are so many situations where someone may be forced to sell a house for such long periods. Some reasons that cause the sale of a mortgaged home are:
- Change of job and municipality of residence.
- Inheritance of a place whose mortgage you cannot pay.
- Divorce in which one party sells their half to the ex-partner.
- Birth of children that forces to change to a bigger house.
Far from scaring off buyers, mortgaged homes are seen as an opportunity. This is because, in general, they are cheaper than new homes and other unencumbered second-hand homes. In this article, we explain the steps to sell a mortgaged house so that you stop thinking about it and take action.
Ways to sell a mortgaged house
Not only can a bank-mortgaged house be sold, but there are three different ways to do it:
- Sell the house and pay off the mortgage.
- Subrogate the mortgage to the buyer.
- Apply for a bridge mortgage.
Next, we explain how to sell a mortgaged house so that you can choose the way that best suits your circumstances.
How to sell a house and pay off the mortgage
Selling a house and paying off the mortgage is the most common and accessible practice. In this sense, there are two options:
- Sell the house at a price higher than what remains to be paid on the mortgage.
- Sell the house at a price lower than what remains to be paid on the mortgage.
Pay off the mortgage by selling the house for a higher price.
This is the best possible scenario since it allows you to cancel the mortgage right when the buyer signs the deed before a notary. To do this, you must:
- Go to your bank and request the Certificate of Outstanding Debt.
- Before signing the contract of sale, the notary and a representative of the bank will check that all the documents are in order. Among them is the Certificate of Pending Debt, which is essential to present if a house is mortgaged.
- When the buyer gives you the check, you must go to the bank and enter the amount necessary to pay off the outstanding mortgage debt. In some cases, mortgage contracts include a cancellation clause. If this is your case, you will also have to pay the mortgage cancellation fee.
After that payment, the amount that remains is the well-known capital gain, which you will keep for the sale. This money is subject to all taxes involved in selling a home.
For its part, the buyer must go to the Property Registry to provide the document that proves that the debt has been paid.
Pay off the mortgage by selling the house for a lower price.
If your debt with the bank is too high or the real estate market at the time of sale does not allow you to sell at the price you would like, it will be the case that you sell for a price lower than what you have left to pay on the mortgage. Even so, you can cancel the mortgage, although under less favorable conditions than in the previous case:
- Again, you must go to your bank and request the Certificate of Outstanding Debt and present it at the signing of the purchase agreement.
- When the buyer gives you the check, you will have to allocate it in full to cover part of the outstanding mortgage debt.
- The debt that is still outstanding will no longer be considered a mortgage but a new bank loan. This will have its conditions and clauses different from those of a mortgage.
- It should be noted that you will probably also have to pay the commission for the cancellation of the mortgage and the commission for the origination of a personal loan.
If you are not interested in selling your house in these conditions, you should assess whether it is more worthwhile for you to wait for your home to appreciate. If you have no choice but to sell at a lower price than what you have left in debt and neither of these two options convinces you, perhaps the following way to sell a house with an outstanding mortgage will do so.
How to subrogate a mortgage to the buyer?
When selling a house with a mortgage, the buyer may assume that debt when acquiring the property. This concept is called subrogating a mortgage. The procedure consists of:
- Go to the bank with the property buyer and request the subrogated mortgage.
- The bank will initiate a study of the buyer’s profile and request sufficient credentials to guarantee that this person will be able to take care of the mortgage. This is done to prevent insolvency fraud. In general, the seller is usually responsible for paying for the study, the processing, and, if any, the surrogacy commission.
- If the bank gives the go-ahead, both parties will sign a document to change the mortgage holder’s name.
- From that moment on, it will be the buyer’s responsibility to make the payment of each installment, covering late expenses (if any and it is previously agreed) and assuming the current mortgage conditions.
Advantages and disadvantages of subrogating a mortgage
Buying a house with a subrogated mortgage has advantages for both the buyer and the seller:
- These houses are usually sold at a low price, which attracts many buyers.
- Since you do not have to apply for a new mortgage to acquire the house, the opening commission costs are saved.
- You manage to sell a mortgaged house, and, in addition, you save paying the bank commission for canceling the mortgage, in case this commission appears in your mortgage contract.
As for the disadvantages of subrogating a mortgage :
- You cannot choose the bank with which to carry out the subrogation.
- The buyer will not be able to negotiate the conditions of the previous mortgage, even if it has abusive clauses.
- Subrogation expenses cannot be claimed.
What happens if the bank does not approve the subrogation or does not comment on it
If the bank does not approve the buyer’s profile or does not give an answer, you can go ahead with the purchase contract unless there is a clause in the mortgage that explicitly prevents it. What will happen is that you will be able to make a debt contract with the buyer, who will pay you the monthly mortgage payment. However, this scenario poses some risks:
- If the buyer stops paying you the debt he has assumed with you, the bank will go against you by not receiving the monthly mortgage payment.
- In that case, you will have to fight with the buyer to pay you and with the bank to save your interests.
Although it is a case that rarely occurs, at Housell, we ultimately discourage subrogating a mortgage without the bank’s approval since it can be a real problem.
How to apply for a bridge mortgage to sell a house
Among the ways to sell a mortgaged house, the most unknown and, therefore, the least common is to request a bridge mortgage from your bank.
This is the ideal option when you urgently need to buy a house or reinvest in housing, but you have not yet managed to sell the one you have now. For example:
- You have a mortgaged house with a fee of €800 per month. You have had it for sale for five months, but you still haven’t managed to sell it.
- You are forced to buy a new house for some obligations such as changing jobs.
- For this house, you are granted a mortgage with a fee of €1,000 per month. However, so that you do not have to pay two installments simultaneously (€1,800 in total), the bank offers you the possibility of producing an installment that is less than the sum of both (for example, €1,300). It’s called a bridge mortgage.
- In exchange for this facility, you agree to sell the last house within a certain period, which can range from six months to five years, depending on the conditions set by your bank.
- When you sell your old flat, the old mortgage and the bridge mortgage will be canceled. From that moment, you will pay the mortgage of the house you bought (the one of €1,000 per month).
If to sell your house with a mortgage, you opt for the bridge mortgage. You have to calculate well if you can afford the unified payment when it costs you to sell your previous home. Remember that it will be a higher amount than what you paid before and that you never know how long the sale process will take.
