How do you sell your home before paying off your home loan?

If you happen to be selling your home before you’ve reached the end of your loan term, you’ll find yourself in good company. Most home loans are granted over a period of twenty to thirty years, yet most people end up selling around the ten-year mark.

“It is rare that homeowners sell only after having paid off their home loan in full. But, because property is an appreciating asset, most are still able to walk away with cash to spare even after covering the existing loan amount and other costs such as commission and bond cancellation fees. The key to achieving this is to factor in these costs when determining your asking price,” explains Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.

The costs that sellers will need to cover include bond cancellation fees which are above the outstanding amount on the bond account. Beyond this, the municipality usually asks for between two to six months upfront payments to provide the seller with rates and taxes clearance certificate which is required for the sale to go ahead. Sellers will also need to consider the costs of attaining the various compliance certificates as well as the cost of a home inspection. Lastly, sellers will need to budget for the commission their agent will charge. 

However, Goslett cautions that sellers will need to be realistic when setting an asking price. “If you’re unable to cover these expenses with the money you’ll earn from the sale, then it is better to wait until you lower the amount owed on your home loan before placing your home on the market,” he suggests.

After you’ve done these calculations and set an asking price, Goslett explains that you will need to inform your bank of your intention to sell. “If the bondholder still owes money to the bank, they will need to notify the bank at least three months in advance. The homeowner also needs to stipulate how they intend to pay the outstanding amount owed, for example, with the proceeds of the sale of the property. Failing to notify the bank of the cancellation within the stipulated minimum three-month period could result in additional finance charges,” he cautions.

Once the bank has received the request to cancel the account, they will instruct the cancellation attorney to attend to the cancellation and provide a cancellation figure. “It is commonplace for bond holders to sell their home before their loan term is up. Financial institutions are more than ready to handle these kinds of transactions. However, missing steps in this process will be an expensive learning curve for the bondholder. To avoid this, sellers should partner experienced real estate professionals who can guide them through the process to save them from making costly mistakes,” Goslett concludes.   

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