Home Equity Loans: What If You Must Sell Your Home

One of the most popular sources of consumer credit over the last decade is borrowing from a credit line taken out against the equity in the home or home equity loans. Lenders will give a set amount of money to homeowners who have built up enough equity in the property in exchange for a lien on the home. When it comes time for you to sell your house, its important to know what needs to happen in order to ensure your adjustable or fixed rate home equity loans are satisfied in full.

The disadvantage of a home equity loan is that it takes up any equity you may have gained from your home's increased value. For example, if the balance you owe on your mortgage is $120,000 and you sell your home for $220,000, you would normally make 100,000 after the realtor fees, closing costs and other property fees. However, if you owe $35,000 from a home equity loan, you will only get $65,000 from the sale of the home.

When you do sell your home, the title transfers to the lender that is giving money to the buyers of the home. In order for them to acquire a clear title to the property (no other institution has a claim or lien on it), the home equity loan will need to be paid off in full. The lender of the home equity loan does not hold the title to the home; that's with the lender of the principle mortgage. However, the lender of the fixed rate home equity loan will have a lien on the property. A lien is a security interest granted to a lender to secure the payment of a debt. You'll need to contact the lender that holds your home equity loan and request a payoff amount to release the lien. Also, check the terms of the loan, especially the home equity loan rates, as most paperwork will include language that requires you to pay off the home equity loan upon the sale of the home.

Make sure that before you begin the process of selling your home, contact the lender of your traditional mortgage as well as the home equity loan lender. You can let them know of your intentions and work out arrangements with them as the process is carried out.

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