How To Avoid Due On Sale Clause

What You Need to Know About The Due on Sale Clause

If you’re thinking about selling your home, learn about the due on sale clause. The idea is to find out what it is, how it works, and its significances. You also need to know how the clause will affect your home sale process.

With this information, you’ll simplify and expedite the house sale. The reason is that you have taken care of all the things that may delay the home selling process.

If you’re looking to know more about the due on sale clause, then you’ve come to the right place. Keep reading to discover more about the clause.

What is the Due on Sale Clause?

A due on sale clause is there to ensure that the home seller pays off the entire mortgage amount upon the sale of the property. By doing so, it enables the Seller to take a mortgage for another property. The new buyer, therefore, is not at risk of suffering a new interest rate.

Importance of the clause

The clause is important to the three parties involved in a sale of a house (lender, seller, and the buyer)

The lender

This Clause protects the lender from transferring the mortgage to an unknown person. The lender has a relationship with only the Seller. Therefore he doesn’t have any clue concerning the credit score of the buyer and income level. Without this information, the lender won’t know if the buyer is capable of paying the mortgage.

It protects the lenders from low market interest rates. When the interest rate reduces, the lender is at risk of not receiving the actual amount of the mortgage. As a result, the clause ensures the lender receives his mortgage in full. It also ensures that a new buyer takes a mortgage with a new interest rate.

Who Delivers Your Offer to the Seller

The Seller

The clause also helps the Seller from dealing with two mortgages. The due on sale clause ease the burden of the buyer. It ensures that the buyer clears off the mortgage of an old property before purchasing another. Therefore eligible for a new mortgage to buy a new home.

The Buyer

The clause protects the buyer from buying a house that has a mortgage on it. Moreover, it also ensures that the Seller of the house clears off his mortgage upon transferring it.

As a buyer, you have your preferred lender with who you have a long working relationship. However, you may be exposed to a lender with poor customer care services. The due on sale clause will help you maintain the freedom of choosing the lender you want.

 Clause Exemptions

The following are some of the exemptions of the clause.

• If the borrower dies

When the borrower dies, a relative inherits his home. He cannot be relocated or forced to pay the remaining mortgage if any. However, the clause is put in place if the relative refuses to occupy the home. And it can transfer the property to the spouse or the children of the borrower.

• If a spouse files for divorce

If the borrower files a divorce, the property may be passed to the spouse or children. In such a situation, a due on sale clause is not called upon. However, for it to be effective, the new owner must occupy the property of the borrower.

• Joined Tenancy

In some instances, a borrower may join hands with a tenant and buy a property. However, in case he dies, the active tenant will be responsible for the property. Moreover, the lender won’t call upon the clause.

Instead, the active tenant takes the mortgage and pays it within the agreed period and the agreed rates.

Consider This Clause Whenever You Think of Selling a Property

Due on sale clause helps the home seller avoid the burden of carrying the burden of two mortgages. That’s why when selling your home; you should seek as much information as possible on how the due on sale clause works. You want to know who activates this clause and the paperwork to fill it.

Find the top finance experts you can trust to educate you more on the clause. You want to know when it’s valid and its exemptions.

Disclaimer: This article is meant for educational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice.