If you’ve tapped the lender well twice and hold two mortgages on one house, you might think selling that house will be a challenge. After all, having two mortgages doesn’t mean you owe more on the house—it just means you have loans coming from two different sources. So what actually happens when it’s time to sell?
The truth is that unloading a house with two mortgages doesn’t have to be tricky, and can be a similar process to selling a home with one mortgage. However, it has the potential to become more complicated, so you need to know the facts.
Why would someone need two mortgages?
There are a variety of reasons for dual mortgages on one house, but one of the most popular reasons is if the buyer can’t afford a 20% down payment but doesn’t want to pay private mortgage insurance. This is known as a piggyback mortgage, or 80-10-10. When a home buyer gives 10% as a down payment on a property, a piggyback mortgage allows the buyer to finance 80% with one mortgage, then an additional 10% with a second mortgage—hence two mortgages.
As long as you can afford to make timely payments on both loans, this can be a feasible option.
How to sell a home with two mortgages
Selling a home with two mortgages is mostly like selling a house with one mortgage, says Aaron Hendon, a Realtor® with Christine & Company in Seattle.
To make yours a regular home sale (as opposed to a short sale), “the home needs to be worth more than the total of the mortgages,” Hendon says.
That means creating a strategy with your agent that will generate enough income to cover the amounts you owe on both liens, and hopefully enough extra that you turn a profit on the sale. When the closing is completed, the title company will then pay off each mortgage, and hopefully cut you a check for whatever is left over.
Difficulties with selling a home with multiple mortgages
There are also a few snags to consider when you are trying to offload your home with multiple mortgages If your home has decreased in value since you bought it, you might not be able to cover both mortgages. In that case, you might want to reconsider the sale.
If you’re desperate to move and still want to proceed, you can do so, but you should be prepared to make up the difference on your own to pay off each loan. In that case, the money to cover each mortgage will come out of either your pocket or the second loan holder’s pocket in the form of a short sale, says Hendon.
In a short sale, the lender accepts less than the full payoff for your loan when you sell your home, says Michele Lerner, author of “Homebuying: Tough Times, First Time, Any Time.”
“You’ll have to demonstrate financial hardship to explain why you need to sell the home at a loss rather than keep it,” Lerner says, but you should still be able to make your big move.
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