Can I Sell a Home in Pre-Foreclosure & Make a Profit in 2021?
Selling your house to a cash buyer is about as close to instant gratification as you can get.
If you’ve received notice about missing too many mortgage payments, you may be wondering whether foreclosure is inevitable or if selling your home might be an option.
First, you need to know whether your home has enough equity to turn a profit before it ends up on the auction block.
Foreclosure may free you of the debt, but it comes with many consequences—such as eviction, credit damage, and future home-buying issues.
Here’s how to figure out whether selling your home in pre-foreclosure is a better option than moving forward with the foreclosure process.
How Do I Know Whether I’ll Make a Profit During Pre-Foreclosure?
You will find out whether you can make a pre-foreclosure profit by determining your home’s value, then subtracting your remaining debt and selling costs.
Find Out How Much Your House Is Worth
You can get a quick estimate of the value of your home online. The Balance, a personal finance website, ranked the top six best home estimate sites of 2021 and dubbed Zillow as the best overall. They liked the usability, large database, and variety of tools. The most accurate accolade went to Redfin based on its data updates and low margin of error.
When determining your home’s worth, you need to be aware of whether you’re dealing with a buyer’s market or a seller’s market. If there are more sellers than buyers, your home may not be perceived to be as valuable as it would be if there were more buyers than sellers.
While an online home estimate is a good starting point, you should know an appraisal will be necessary (if a mortgage is involved) and used as the final ruling on your home’s value. This report will be based on current market trends, similar property sales, and a home inspection.
Figure the Remaining Debt on the Home
Now that you have an idea of what your home is worth, you should calculate the remaining debt that’s owed on the property. This includes all of the outstanding principal and interest from your mortgage plus the late fees from your missed payments. You may also have fees from the mortgage company’s attorney for delinquency.
Once you have added up what it will take to pay off the mortgage and other costs that were incurred from falling behind on payments, subtract that number from your home estimate. Then you’re almost ready to analyze whether you can make a profit by selling your home in pre-foreclosure. But there’s one step left.
Factor in the Costs to Sell Your Home
You have to spend money to sell a house in the real estate market. These fees can include (but are not limited to):
- Staging & preparation
- Real estate agent commissions
- Inspections & repairs
- Closing: title, transfer or excise taxes, escrow fees, reconveyance, recording, & prorated property taxes
- Seller concessions
- Overlap costs
- Moving & relocation
After you total up these fees, subtract that number from your revised home estimate. Now you have enough information to make a plan and move forward.
Determine Whether You Have Equity
Once you deduct the remaining debt and selling costs from your home estimate, how much money is left?
If the number is negative, that means you won’t have enough money to cover all of your expenses, much less make a profit. If your balance is zero, you’ll have the funds to pay your debt, and that’s about it. If the number is positive, you have some equity and stand to make a profit from a sale during pre-foreclosure.
If you don’t sell your home the traditional way—and enlist the help of a cash buyer instead—you won’t have to pay anything to sell your home. There will be no repairs, realtors, or other costly factors that eat into your profit. A cash buyer will make a fast and fair offer—plus foot the bill for closing costs!
One More Thing…
Low mortgage interest rates, limited inventory, and high demand drove up home values and created a seller’s market in 2020. That scenario is likely to repeat itself in 2021. This means you may have a better chance of making a profit this year instead of settling for a short sale.
Can You Make a Profit in Pre-Foreclosure?
Now you know how to figure out whether you can make a profit on your home by selling it before the foreclosure process is completed.
Once you determine how much the house is worth, then subtract the remaining debt as well as the selling costs, you’ll know whether the home has equity.
If you start early enough, you may be able to sell the home before the bank forecloses and avoid the repercussions. But how long it takes to sell a home using the traditional real estate process all depends on pricing and market conditions.
When you sell your home to a cash buyer, you can close the deal in just days! Plus, you don’t pay for selling costs such as preparation, prorated property taxes, or escrow fees.
Contact New Again Houses today if your home is in pre-foreclosure!