Updated March 5th, 2019
A series of unfortunate events may have led you to a home loan modification. Maybe you lost your job or are struggling with health issues. Getting that little bit of relief from the loan modification is soothing, but you may be wondering, “Can I sell my home after a loan modification?”
What is a Loan Modification?
A home loan modification is a reduced monthly mortgage payment set up by the lender when a homeowner is unable to meet their monthly payments. This happens when a homeowner loses their income or faces an unexpected and pricy event, and is unable to qualify for a home refinance.
To apply for a home loan modification, you’ll need to contact your lender. There may be programs in place that will help you reduce your payments without getting a loan modification. Make sure to ask your lender about your options.
You’ll need to prove a few things to your lender before they’ll give you a modification.
The first is proof of income. You must show that you are bringing money in. You must also show that you have money or assets available, in case you lose your job.
The second thing you’ll need to show them is a willingness to lower your monthly expenses. This might mean cutting your cable bill, canceling a few subscriptions, or taking a break from your gym membership. The lender must see a good faith effort on your part for them to feel comfortable modifying your loan.
Note that a loan modification is not a refinance. When you refinance, you are given a new loan at a lower interest rate. A home loan modification lowers your interest rate during a set period by sticking it at the end of your loan.
Reasons for Selling After a Modification
There are several reasons you may want to sell after getting a home loan modification.
You got the modification to the loan because you were in financial hardship. If you find a better job that is out of the area, you may want to jump on that chance. This could happen because the provider of your household recently completed training or found out about better job opportunities elsewhere.
Another reason many sell after a modification is because they can no longer afford their house payments. This is one reason why your lender will make sure you have a backup plan. If you find yourself unemployed and your savings dwindling, you may want to find a more affordable home.
Can I sell my home after a loan modification?
You can absolutely sell your home after a loan modification — but it may cost you.
To modify your loan, you signed a contract that reduces your interest rate and your monthly payment. Within that contract, there may be a clause that doesn’t allow you to sell your house without paying off the balance of the loan. Your lender cannot prevent you from selling your house, but they can make it more difficult for you.
Often, that contract you signed includes a prepayment penalty. This means if you pay off your loan before the loan term, you pay a fee. A prepayment penalty usually doesn’t last more than a few years, but can be as much as 80% of six months worth of interest.
If you’re selling to move into a more affordable home, that prepayment penalty can be expensive. Here’s an example from The Truth About Mortgage:
- $500,000 loan amount
- Interest rate of 6.5%
- Monthly mortgage payment of $2,708.33
- 6 monthly payments = $16,249.99
- 80% of those 6 monthly payments = $13,000.00
How do I sell my home after a loan modification?
You aren’t partnered with your lender, and thus do not need their permission to sell your home.
That being said, the first step to selling your home should be to contact your lender and ask for the payoff price. They will give you the amount of money you still owe them for your house. This will help you price your home.
From there, you’ll want to talk to a local Clever Partner Agent. They’ll be able to do the research and that will help you get the best price for your house.
Because you are looking to save money, you’ll want to use an agent that gives you the best service without the price tag to match.
Partner Agents will walk you through the entire selling process. They’re local experts, which means they know your market. It’s also a good idea to check with your agent and see if they have any experience working with a modified home loan.