How to sell a house in Italy with a mortgage

If you own a property in Italy and are planning to sell, there are many bureaucratic hurdles to get over, more so if the property being sold has a mortgage on it. Initial questions even include: can you sell a property with a mortgage? The answer is yes, and these are all the steps to follow when selling a property with a mortgage on it in Italy. 

A mortgage is a loan that has a medium to long duration. Often, many years are required to pay it off, especially when it is taken out for the purchase of a property. However, it's possible that, during this time, the need to leave the home for which the loan was needed arises. In this situation, those who choose to opt for the sale of the property are numerous. Selling a house with a current mortgage in Italy, however, is a complex subject because it requires precise knowledge of the subject in order for the procedure to be successful. Let's find out everything you need to know about selling a house with a mortgage in Italy.

Selling a house with a current mortgage in Italy: is it possible?

You decided to buy a house in Italy and did so with a mortgage, but now you've decided to sell the property, while the mortgage has yet to be paid off. It is possible to do so in Italy, provided certain conditions are met.

When taking out a loan, the agreement is with a credit institution, which does not exercise any ownership over the property purchased. The homeowner, in fact, has the option of selling the house with a current mortgage and does not have to obtain any permission from the bank to do so. What the owner does have to do, however, is to manage the financing file, i.e. arrange for the transfer or closing of the mortgage. In this case, it is the lending institution that has to make the decision.

How to sell a house in Italy with a mortgage and buy another one?

Selling a house in Italy with an ongoing mortgage, especially for those unfamiliar with the subject, can be quite complex. If, in addition to selling the property for which you have previously applied for financing, you wish to buy a house while already having a mortgage, the factors to be assessed multiply. The first step to take in order for the procedure to go well is to find out what the possible ways in which the financing can be managed are. Specifically, the possible options are as follows:

• guarantee replacement;
• assignment to the buyer;
• early extinction of the mortgage due to sale of the property.

There is also the possibility of applying for a bridging loan, a form of short-term financing that has recently caught on in Italy. Although these are all valid solutions, it is not certain that the requirements for accessing them are met. Whether or not one of these four paths can be taken depends on the bank. The credit institution, in fact, is called upon to carefully assess the financial situation of the borrower before giving a pass. Why? Because in order to sell a house with a mortgage and buy another one, it is indispensable for the owner of the property to have the loan repayment statement for the sale of the house. More specifically, the lending bank, after examining the financial condition of the applicant, issues a written statement, in which the amount of the outstanding debt is stated.

Substitution of collateral

When one chooses to take out a loan to buy a house, the lending institution to which one applies, in most cases, enters a mortgage on the property in order to protect itself in the event that the loan instalments are not paid. If the borrower does not pay, the lending bank will foreclose on the property, which will then be put up for sale.

If one's intention is to sell one's home with a current mortgage and buy another, a replacement mortgage may be the best choice. In this case, the mortgage on the house to be sold is transferred to the new property. It should be specified, however, that this route is not always possible. It is possible that one's own bank may not agree to move the mortgage, thus hindering the sale of the house with a mortgage backed by another property.

Taking over the debt

Another possible option when you want to buy a house while already having a mortgage is to sell the house with a mortgage assumption. If one opts for this solution, the buyer of the property encumbered by the loan is obliged to pay the bank the amount of the outstanding debt until the natural maturity of the mortgage. In other words, the new buyer replaces the original debtor.

Taking over the mortgage without the consent of the bank and the new buyer is not possible. In fact, the transaction can only be undertaken with the consent of both parties. If the lender and the buyer agree to the take-over, the homebuyer is called upon not only to make repayment of the instalments, but also to bear the costs of maintaining the financing.

Those who opt for the sale of their home with the assumption of the mortgage should be aware that there are two types of assumption: forbearance and cumulative assumption. A cumulative assumption binds the original borrower to repay the loan instalments in the event that the new buyer is no longer able to make the payment. By contrast, a discharge assumption releases the seller from any obligation to the bank.

Early extinction of mortgage for sale of property

Early mortgage repayment due to sale of the property is by far the most popular solution among those who choose to change their home with a mortgage in Italy and buy another one. There are two types:

• Extinction of the loan for house sale before the deed: when you have the sum needed to extinguish the loan before the deed on the new house, you can settle the debt with the credit institution, which will issue the cancellation of the mortgage and the receipt of the extinction;
• Extinguishing the mortgage at the same time as the deed: in this case, the debt is extinguished using the money collected from the sale of the house with the mortgage, at the same time as the deed. The buyer is required to hand over a cheque to the bank, which issues a discharge of the discharge and clears the mortgage.

The extinction of the home sale mortgage is the solution that many people choose to resort to because it is advantageous both for the lending institution and for the borrower/seller. Indeed, it is in the natural interest of both parties to close the financing relationship, with no strings attached.

When can a house be sold with a mortgage in Italy?

One of the questions most in doubt when you want to change your home with a current mortgage is after how long it is possible to sell it. The answer is that it depends on whether the property is a first home or not. If the property is a second home, it is possible to sell it at any time. If, on the other hand, one's intention is to sell one's first home (main residence) with a mortgage and buy another and the property in question was bought with Italy's "First Home Bonus", the sale is not permitted before 5 years. The alternative is to sell the house with a mortgage after the 5-year period.

However, there is an exception: if, within a year of reselling the property purchased with the bonus, the taxpayer buys, receives or builds a property that has similar characteristics to the one sold and uses it as a main residence, they may sell the house with a mortgage before the 5-year period. In this case, however, they lose the right to the concessions. Inland Revenue in Italy, having carried out the appropriate checks, asks the taxpayer to pay the unpaid amounts and subjects them to a 30% surcharge on the total unpaid taxes

How to sell a jointly owned house with a mortgage?

When the ownership of the property on which the mortgage is encumbered and which you wish to sell is jointly owned, the consent of the parties involved is indispensable before starting any procedure. The same applies if the mortgage that has been taken out with the lender to buy the property is jointly owned: selling a house with a joint mortgage is possible with the consent of both parties.

Calculate your mortgage instalment with our free idealista/mutui simulator and choose the repayment plan that suits you.