Homeowners may be asking a question right now during the home-selling process. Specifically, it’s this: “Can you sell a house with a HELOC in Missouri? The short answer is yes. A HELOC, or a Home Equity Line of Credit, doesn’t prevent you from selling your property. However, there is a caveat to be aware of.
A HELOC is a lien against your house. In other words, the outstanding balance needs to be paid in full at closing. That way, the title company will use the buyer’s funds to pay off the primary mortgage before the HELOC itself. The remaining money is your net equity, which is subject to a 6 percent real estate agent commission. Because of this, the idea of selling your home as-is to cash buyers like Huck Buys Homes becomes a more appealing option to consider.
Let’s say you used your home equity line of credit (HELOC) to fund whole home renovations. Or you may have used it to consolidate credit card debt or for another purpose. Most homeowners can treat their property like a flexible financial investment. This way, they can tap their tappable equity whenever the need for extra cash arises.
But what if you are considering the idea of moving? Is a HELOC attached to it going to be a problem? The answer is yes only if you decide to go the traditional route. Taking it further, a HELOC will not stop a home sale. But it’s very different from the closing process and how much of the home sale proceeds you keep. With cash buyers who buy homes as-is, you won’t have to deal with the obstacles that are normally created through the regular sales process you’ll see in real estate.
We’ll dive more into what happens to a HELOC when you sell a home in Missouri. Also, you’ll learn exactly how to protect your equity during the transaction process. Let’s go.
If you don’t know what a Home Equity Line of Credit (HELOC) means, no worries. To go a little deeper, it’s basically a second mortgage that is secured by your property. It’s different from a home equity loan, which gives you a lump sum. With a HELOC, it’s a revolving credit line, but it does have a defined credit limit that you can work with. So here’s how it works: you have a draw period that allows you to withdraw funds as needed. During this period, you make interest-only payments based on the prime rate, along with the margin of the provided lender.
Since the home serves as collateral, the HELOC is considered a lien on your property. Once again, this means that it must be paid off when the property sells. Another thing to note is that you can’t transfer the loan to another property or leave it open when the collateral disappears. You need to clear the balance before the title is transferred from the former owner (you) to the new one.
One of the best things sellers rarely manage is the payoff themselves. That’s because the title company handles the whole process during closing. Here’s a look at the process and how it happens step-by-step:
Prior to closing, the title company will request an official payoff statement from the lender. The document will include the following information:
The statement must be valid for a limited time period since the HELOC balances can change with interest accrual.
2. The Order of Payments
When the buyer submits funds via the mortgage lender or cash purchase, the money will enter escrow. From there, the title company distributes the funds in the following order:
As such, the title company removes the lien after it’s satisfied. The property is transferred to the new owner without any additional issues. That’s it, the property is off your hands, and you’re good to go.
Your home equity is the difference between your home’s market value and the debts secured by the property itself. Here’s a formula that is easy to follow: Home Sale Price – Primary Mortgage – HELOC Balance = Remaining Equity
Fo here’s an example to follow:
Let’s say the home you’re trying to sell is valued at $450,000. You have a mortgage loan balance of $250,000. Finally, you have a HELOC balance of $100,000. All told, the remaining equity is $100,000. If you were to sell the house via the traditional route, the number is reduced considerably.
According to the National Association of Realtors (NAR), a real estate agent’s commission ranges anywhere from 5 to 6 percent of the sale price. So let’s do a bit more math, shall we? With the home at $450,000, and you take away 5 percent, that’s $22,500, the agent gets on commission before the closing costs. There are fees that come out directly from the equity once the HELOC is paid.
Now, do you see why cash buyers look more appealing? Huck Buys Homes will do their part to make sure you avoid the commission fees so you keep more money in your pocket.
Some home sellers may find that the rising interest rates or declining home prices may reduce their available equity. Meaning if the total debt exceeds the market value of their property, that results in negative equity, making it a challenge to sell their home through traditional means.
So, for example, if the mortgage balance of a Blue Springs home is $300,000 and the HELOC balance is $75,000, the total debt is $375,000. With that said, selling normally would mean requiring more money to bring at closing. You have options on the table such as:
Since short sales involve multiple lenders, the whole process can be extensive. It will take a lot of time and it might not be enough for someone like yourself. If you want to sell the home fast, simpler options are available including those who provide a cash offer in Missouri like Huck Buys Homes.
Timing is important when it comes to selling a property with multiple loans attached. A HELOC payoff statement can take anywhere from three days to two weeks for it to process. Delays may happen in the event of the following situations:
Of course, these are the things you really don’t want to deal with. So why not work with experienced Missouri real estate experts that can keep the closing process simple and on schedule? In the traditional sense, the home sales process also exposes the buyer financing issue that can affect timing. For example, the factors related to the buyer’s mortgage approval include:
If the buyer loan fails later on in the process, the sale falls through. Even with weeks of preparation, a home deal can go south fairly quickly. That will spell disaster for you as well. And it’s one more good reason why cash buyers may be the better option.
If your HELOC balance has already reduced your equity, traditional commissions will leave you with an even lighter wallet. For this reason, Huck Buys Homes becomes the best option. You skip the agent commissions and you get more money in your hand once the sale is complete. We buy homes in Kansas City and throughout much of Missouri even if you have a HELOC attached to it.
The process is simple and straightforward. It includes:
Faster options for home selling are more accessible than ever. The question is: are you willing to make the right choice?
Yes. An equity release or reverse mortgage is similar to a HELOC. It creates a lien against your property. As such, when you sell the house, the outstanding balance is paid off from the sale’s proceeds.
No. You do not need to pay off or close your HELOC out of your own pocket before your home is listed. The balance can be settled using the buyer’s funds on the day of closing.
It depends on who your lender is. Keep in mind that some HELOCs will have an early termination fee or prepayment penalty. Which means if you close the credit line within the first few years of opening it (24 to 36 months), this penalty applies. For this reason, you will need to check your loan documents or consult with the lender to see what the payoff quote is and if any fees are applicable.
Huck Buys Homes know that real estate agents can leave you high and dry when it comes to what’s left of the sales proceeds. Not to mention, the HELOC equity can also dwindle as well. Why suffer through all of that heartache when you can go through a Missouri cash buyer that just takes the house off of your hands with the best possible cash offer? No commission fees, no problem. Contact us today for more information on how we can sell your home even if there’s still HELOC equity attached.
