selling your house to a family member

[nonofyobiz]

Hey I was just thinking and wondering what the possibilities are regarding selling a house.
If you sold your house to a family member you could do it without realtor fees and save money there, but is there a way to get out of paying that buy out penalty for the mortgage?? I'm locked in until August 2018 i think and the penalty is around 17k currently. For reasons I won't get into I think i have to sell the house so just trying to think what the best options are.

If they were to assume the mortgage that would probably work right? but then that would be for the mortgage amount and I would lose out on the equity wouldn't I? I have not much experience with this so any help / knowledge would be greatly appreciated.

[prae]

One common way to avoid paying penalties is to "port" the mortgage to another property. Many mortgages are portable and this would allow you to sell your current property, buy another, and avoid early-payout penalties.

It sounds as though you want to sell your current place and aren't necessarily planning on purchasing another, so portability may not matter to you.

The second mechanic you touched on is assumability. This would be where the purchaser of your home would "assume" responsibility for paying this loan, at the same interest rate & terms you agreed to with your lender. This is typically only attractive in times of rising interest rates, which is why you don't hear much about them these days.

There's technically no reason you couldn't create a sale situation where the purchaser assumed your portion of the loan and secured other financing to cover the remaining portion of the loan- thus giving you access to equity in your home.

Both of these mechanics depend highly upon the terms of your existing mortgage. Not all loans are portable or assumable.

Call up your lender or a mortgage broker i.e. @TimLacroix (haven't used him personally- but he's all over beyond) and have a conversation about your scenario.

[prae]

In addition to a mortgage broker, I'd recommend speaking with a lawyer experienced in real estate. I've used Jim Reich on several transactions and had no complaints:

http://www.reichlawoffice.ca/

I imagine if you called up the office you could get in touch with someone who could advise you on your situation.

[nonofyobiz]

K thanks alot

[ercchry]

problem with assuming the mortgage is that i believe you are still a "co-signer" of sorts for a certain amount of time

but you could refinance before moving it over to recover more equity and making the "down payment" to you smaller for the relative... but yeah, they'd have to pay you out the difference in sale price from whats remaining... porting isnt always straight forward either, basically for you to have 0 penalty you would be stuck with the same terms and payment as you currently have.

if you dont want to lose the home and have enough equity in it, but the payments are just too much right now you can always look at doing a HELOC for the total amount outstanding, this would give you just interest payments on the property and perhaps a bit of money on top for emergencies... if you stick with the same lender you might be able to avoid penalties

[TimLacroix]

Originally posted by nonofyobiz
Hey I was just thinking and wondering what the possibilities are regarding selling a house.
If you sold your house to a family member you could do it without realtor fees and save money there, but is there a way to get out of paying that buy out penalty for the mortgage?? I'm locked in until August 2018 i think and the penalty is around 17k currently. For reasons I won't get into I think i have to sell the house so just trying to think what the best options are.

If they were to assume the mortgage that would probably work right? but then that would be for the mortgage amount and I would lose out on the equity wouldn't I? I have not much experience with this so any help / knowledge would be greatly appreciated.

Assuming a mortgage is considered a sale therefore requiring the new party to qualify. Family assuming the mortgage is fine.

The advantage in this case is that you would avoid the penalty and your family would inherit the existing rate, term, etc.

The family would need to come up with the difference for down payment. Assuming you have a mortgage of $200,000 and your sale price is $225,000... your family will need to come up with $25,000 for the down payment.

It can get more complicated if the family does not have sufficient funds for down payment and or needs additional funds to be added to the mortgage.

Feel free to reach out and I can hopefully assist you with your questions.
Tim