When you sell your home, a part of the sale proceeds are used to pay off your mortgage. Then so long as you have enough equity in your home, you’ll have enough money leftover from the sale to put towards your next purchase. But if you don’t make enough from the sale of your home to pay off your mortgage, you will end up having to make up this shortfall and pay off your mortgage before the sale can proceed.
If you stop paying your mortgage payments you may have your home repossessed. It will also make obtaining future credit very difficult in the short term. This not only includes getting home loans, but it will become extremely challenging to obtain any form of credit. Missing one or even a couple of mortgage payments doesn’t mean repossession is imminent. But forgoing them will set the repossession process in. Plus to boot, it will have long-lasting consequences for your credit and finances.
What happens between exchange and completion and what could possibly go wrong? In England and Wales the penultimate stage of a property sale is exchange of contracts. This is the point at which both the buyer and the seller are committed to the sale and purchase. This is usually when 10% of the purchase price is paid by the buyer. At this point neither party can withdraw without having to pay damages to the other party. The final stage of a property sale is completion.
The exchange of contracts for house buying is the process that makes the transaction legally binding. The next step in the process is completion of the contracts,which is generally 30-days after exchange. But there doesn’t have to be a set time period between exchange and completion. The time between exchange and completion can be whatever period of time the parties require and agree in order to be able to get themselves ready for the completion date.
If the house that you’re buying burns down between exchange and completion, you still have to go ahead buy it. As for who is responsible for the damage can be a bit of a grey area, although the seller is contracted to look after the house and repair any damage. The seller is obliged to keep the property in the same condition it was when contracts were exchanged. That would mean that if there is property damage between exchange and completion the vendors are liable.
Insurance between exchange and completion is necessary to protect your interest. Your conveyancing solicitor will advise you to arrange insurance when you exchange contracts on your new property. Between exchange and completion you are obliged to proceed with the purchase. This would be the case even if the property were to be damaged before the completion date.