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hello everyone and welcome to another real estate video this is Xavier V Dania the real estate YouTube guy here in Phoenix Arizona helping you accomplish your home goals the last few weeks we've been talking a lot about financing the type of loans are out there the interest how all that fits in a big picture and naturally people are starting to ask the questions of when it comes to selling a lot of times Realtors including myself always love to talk about equity and selling your house yet or throwing these terms around but we never stop and start explaining the basics so in today's video we're gonna talk about the very basic concept of how does selling a house work when you have a loan now we all know what it means to sell a house right you find a buyer you agree to a price you that money gets but to your account right well what happens when there's a loan or a mortgage in place or what happens when there's like all that interest that you're supposed to pay for the next 20 25 years how does it work what gets paid off ah well that's what I'm here to talk about first and foremost I'm sorry about the haircut it's a feat of Arizona's one of the worst spots for kovat right now and I'm just you know playing it safe and not getting a haircut so you guys enough to deal with deal with the werewolves Javier alright now let's get to it I just drink some dr. pepper down the wrong hole ah dr. pepper why you doing this to me when you own a house it is your house it's no one can take it from you well not necessarily it's also kind of the bank's house so they're giving you the house and it's yours however it's like you own something but really behind you there's like a big guy just like hey this is actually my house or a big girl whatever floats your boat it's there giving you the illusion that it's their house but if you ever stopped making that payment come knocking on the door they're gonna foreclose it and take that house back so how this works is you can decide to sell whenever you want literally after buying the house you can sell your house however there is very strict laws regarding this so please talk to your accountant to verify it but my general knowledge of this is if this is your sole house and you've occupied it fully for at least two years you can sell it and it'll be tax-free now once again please make sure to verify with your accountant if you to sell this prior to two years or you have as an investment or anything like that well you can be liable to pay taxes on any profits you make so just a quick warning you know people always ask when can I sell my house when can I do all this one kind of refinance that's the only thing you really need to think about so instead of asking your Realtor that ask your accountant or your si si ma si ma it is si ma what am I talking about CPA ask your CPA geez Louise so when you decide to sell your house the way it works is well let's just lose an example so let's say you bought a house for 200,000 it's been already more than two years you check the values of the area maybe you talk to one of your local Realtors you find out it's worth about three hundred thousand so in essence you have about $100,000 worth of equity when we talk about equity it's the money that you've gained in value since your initial deposit now two things have changed since you bought the house your equity has gotten that meaning the value of the proceed value at this point has gone up about 100k but your loan amount has also gone down so you bought this house for two hundred thousand say you put I don't know three three and a half percent down well your loan amount was closer to about 185 or 190 right well as you've lived in the house let's give it five or ten years you probably owe 160 or 170 on there let's say 150 to make it an easy number because sometimes math doesn't work well with me so your actual true equity that you have in this house is not a hundred thousand it's closer to a hundred and fifty thousand dollars which is pretty sweet and that's money that you wouldn't have had if you're renting an apartment somewhere right so big pad in the back but like many of you guys were asking me what happens right you signed a mortgage or agreement for 30 years there's a lot of interest that the lender was going to collect from you for the following 2025 years what happens to that amount well the first thing you want to do is you want to verify that your loan does not have a prepayment penalty now I will say in the eight years I've been doing this post financial crisis because I wasn't around for that I have never seen a loan that doesn't have a prepayment penalty so odds are you probably do have one but you want a hundred percent verify and make sure that there's no prepayment penalty now if you verify this then well you all really have to worry about is going to be the remaining balance of the load whatever amount you have left of interest that's not money that the lender was going to collect from you right using a quick amortization schedule I can see here by 10 years you know about 150 149 which is hey look at that I guess that right on the spot but all in all for 30 years you were supposed to be a hundred and forty three thousand dollars now it is incorrect for you to think that that let that money still needs to be collected if you decide to sell the house once you decide to sell the house whatever interest the bank has collected from you that's a profit right they're not going to continue to make the rest of the interest because the interest only applies to something that is alive and if your mortgage dies meaning you sell your house then there is no need to collect interest on every other payment the way interest is calculated in your monthly payment is they get the loan balance they multiply that with your interest rate and whatever that number is a divided by 12 and that's the number that they collect of interest per month now if this number is actually now zero well then the whole formula falls apart whatever the balance is when you decide to sell a house that's we that's that's all you have to worry about so if you've lived in this house more than two years and you talk to your CPA or CMA whatever the heck they're called and they say yep you're gonna collect the zero zero taxes on this so you're probably thinking 150 K in the bank all mine yeah baby first and foremost I want to acknowledge that three hundred thousand dollars is just your perceived value of your house you're truly not gonna know what the value of your house is until you actually test the market out and you put it on the market so I don't want you to get too attached to the number that you think it's perceived even if you have a realtor approve it or this is just your gut reaction because even though there's houses that sold for 280 in your block this house is special because your baby was born in this walls or your baby learn how to walk in these you want to be realistic here write the number that you're assigning to it initially is not going to be the one set in stone so if you decide if you decide to lower the price because it doesn't sell or because you you know you took a less offer you didn't lose money you know people always go I took an offer 290 I lost $10,000 you never had $300,000 I believe with white so whatever value you you perceive you think it's worth that's the basically what you're gonna test the market on now whatever offer you end up getting either because the market agrees with you and there's enough demand for to meet that value it might even sell for more now let's say it sells for $300,000 well a lot of times you have to consider a few closing costs yes you do have some costs you have to pay first and foremost the biggest one is going to be your realtor commissions now I always tell my clients that when you know you're hiring me to buy your house you don't have to pay my commission I say usually I get paid through the cellar or the listing agent well this is why when someone decides to sell their house they agreed to pay a percentage to the agent helping them and they agreed to pay a percentage to the agent helping the buyer now I'm not gonna give you the exact number because I can actually get in trouble for a standard standardising if that's a word the Commission one thing I do want to note though is that as you're researching you're gonna find some flat fee people that charge very little amount and of course you'll find others that charge a little more you only want to you know want to hire someone that you're gonna trust is going to do a good job and it goes beyond just marketing make sure to take the right photographer to take the photos or you know it goes if you want to hire someone that's gonna truly you know sell that house like it's their house I'm gonna respect everyone that calls on that sign be respectful of on the Oh any agents or people making offers on the table and just really represent you and your best interest for the entire transaction so once you've agreed while you're ever gonna pay your listing agent you have to figure out what you're gonna pay your buyer's agent I really take your listing agents or advice here right once you figure out what you're gonna pay your listing agent and what you're gonna pay for the buyer agent that brings in the deal that's gonna be one fee that you have to worry about the other fee at least here in Arizona is there's usually 1% of title fees now you want to verify if your state's different in my state I believe that the normal is the seller pays the title insurance for the buyer and the seller and buyer split the title fees 50/50 you want to verify with your agent in your state what the fees are gonna be for the title fee's now there's a lot a lot of little ones too that are part of like for example if you haven't paid your taxes yet you're gonna have to pay the remainder or what's left or maybe you'll get a refund back because you already paid your six months of taxes and you've lived in there for three months or there's also HOA dues that might be due soon and all kinds of little fees like that that usually get handled during do all that mishmash of title fees normally in the Arizona it's one and two percent of extra title fees but of course verify with your realtor if you're not in Arizona and of course really the last few you have to worry about is the buyer now a lot of people love to ask the seller to pay their closing cost when they when they're buying a house when it comes time to sell and who they get stingy well you know this is a decision you have to make if your market is paying a lot of closing costs towards buyers well you know yeah it's your decision you want to take the buyer's offer you want to find someone that's not gonna pay closing cost if this if you're in a super seller's market like we are now maybe you have the leverage and you're gonna find someone that not only isn't going to pay their own closing costs but they're gonna pay above value so you really want to play by the market and see you know worth you if it's worth your time and whatnot and all that good stuff so now there might be other fees here that I'm not remembering at the moment so please leave a comment below if your state has something different I know there's always different rules in different states so I look forward to reading those now so let's say you sell your house for $300,000 you have $150,000 balance on it and you have all these fees well the first thing that happens is $300,000 get sent to the title company they pay your mortgage the remainder balance right away one thing that you'll be surprised about is if your loan balance is let's say 150 you might be paying 151 or 152 or even 153 if you remember the first month you don't pay remember when you move into a house you don't pay your first payment for that first or second month well whatever interest accrued in those months or maybe in other months you're gonna pay that then there so you might see your amount go up slightly so always when I calculate the net so yeah whenever I do a net I always add like one or two thousand dollars on top of it just to make sure I always like to overestimate so whatever but in this case we're just going to go with an easy number so the first thing they do is they'll pay off that mortgage entirely so that leaves 150 thousand dollars on the table now what happens at this point is then it did whatever fees or commissions you agreed to pay or the buyers closing costs that gets taken from that one thing that you also never find out is you have an escrow account where you basically been collecting money for the insurance or for the the title sorry the the taxes and all that if there's anything left over a remainder balance there that might be added towards the end toward your title to make this amount go higher but one thing that's happened with me personally is I actually get checks in the mail like a week or two after closing from the remaining balance of the insurance so make sure to you call your utilities make sure you call your insurance companies - because I my dumb-butt was paying insurance on the house I sold for like four months and it really was terrible but anyways just make sure you do that so that's how it works to sell a house when you still have a mortgage hopefully you understand now that it's not very complicated it's really simple so you shouldn't let it affect you now one thing that people always feel is that when they buy a house would they have a mortgage they're trapped for 30 years on the contrary if you're in a position where you're building some equity normally after three to five years you'll you might find yourself in a position where you're ready to sell and not only that but get some money out this is why I personally love owning my home because you know I can't control the market around me but as long as I'm in the house where I can afford the payment that it would have cost about the same to rent anyways you know I can roll the dice and trust the market we'll be doing great and let's say I live in a house for five six years well if I would have rented for five six years I would only maybe get my deposit back if I took care of the place but if I lived in the house I have the potential make hundreds of thousands of dollars not only get my money back that I paid for the monthly but on top of that make much more so thank you guys for watching I really appreciate time if you have any questions whatsoever please leave a comment below I also have all my social media links in the description I actually now have a discord server for anyone who wants to chat with me in discord may I have a Instagram Twitter if you want the DME there I try to do video messages back to you guys I've also live streaming on Twitch and YouTube wise if you guys are twitch followers so go ahead and follow me they're not playing any games yet just kind doing the live to be nice for now eventually once the twitch grows a little more I might play some games other than that guys if you're in Phoenix Arizona area and you would love to work with me I would love to work with you my contact information can be found in the description last but not least we got the homegirl helper available in the my website feel free to check it out if you want an interactive workbook and of course thank you to our sponsors dr. squat and mckissick education use code Xavier for 10% off for Doctor Squatch if you watched it and you're still watching even after that tell me your favorite soda so that way I know you watched it at the very end thank you guys I appreciate your time have a great day [Music]