Can I sell my home and buy a smaller one if I have a loan on it?

Owning a home seems like a ‘finalized' experience - as though you have taken a permanent step in your life - but the reality is that people have reasons to leave their homes and not everyone stays in their home just because they bought it.

So perhaps the time has come that you want to buy a new home. Maybe the payments on your old home are too high or you simply want to move to a new area and there is a smaller home somewhere that you want to move into. Whatever your reason, even though you want to move you may still owe money on your own home.


Can You Sell Your Home if You Still Owe Money On a Loan?
One of the things that people struggle to understand is the concept of equity. In essence, equity is not just the positive value of your home - it is your money. It just happens that your money is tied into your home's value. When you have equity, you essentially have unliquidated money that you cannot get to unless you sell your home.

So a secured loan is not even a loan against your home. In many ways, it is a loan against your own money that happens to be tied into the value of your home.

So if you want to sell your home and move into a smaller one, even if you have a loan, you can do so. You simply need to sell your home and pay back the loan using the difference in equity.

One Thing to Watch Out For - Negative Equity
The one thing you will want to look out for is negative equity - or, in other words, more money out in loans than you can afford to pay if you sell your home. This often occurs when someone takes out a secured loan in addition to their mortgage, and they max out the value of the equity of their loan, only to find that the housing market has caused the value of your home to drop.

What that happens and you have received negative equity, you may not want to sell your home until the value has gone up again. Because if you sell your home with negative equity and move into another home, you will still owe additional money - more than the value of your sold home - when you move into the new house, and you may need to get some other kind of loan with a higher interest rate in order to pay back the loan because you will no longer own your home to secure against.

Your equity is your money. If you have a loan against your equity, then you are required to pay back the loan (Because if you sell your house, you don't have anything to secure your loan against) but when you are moving into a smaller house you can take any additional finances you have left over from your old home and move into your new home without issue. Just watch out for negative equity and be sure and pay back your old secured loan when you sell your home.


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