Can I Sell a House I Still Owe Money On?
Understand how to successfully sell your home even when you haven't paid off your mortgage, covering finances and process.
Homeowners often wonder if they can sell their property with an outstanding mortgage. The answer is yes, selling a home with an existing mortgage is a frequent and manageable practice. Many homeowners successfully navigate this process, using the proceeds from the sale to address their mortgage obligations. The key involves understanding your financial position and the procedural steps that facilitate such a transaction.
Understanding Your Mortgage and Equity
Before listing a home, homeowners should understand their financial standing. A mortgage represents a legal claim, known as a lien, that the lender holds on the property until the loan is fully repaid. This lien ensures the lender can take possession of the home if the borrower fails to make payments.
To determine the exact amount owed, homeowners should request a payoff statement from their mortgage servicer. This document provides the precise total needed to satisfy the loan, including the principal balance, accrued interest, and any applicable fees, as of a specific date. Most servicers allow requests online, by phone, mail, or fax, and may charge a small fee, typically under $30, for the statement.
Understanding the home’s market value is also important. This can be estimated through a comparative market analysis (CMA) provided by a real estate agent, which examines recent sales of similar properties in the area. A professional appraisal offers a more formal valuation, although it typically involves a fee.
Equity is the financial interest a homeowner has in their property, calculated as the difference between its market value and the total outstanding mortgage balance. For instance, if a home is valued at $400,000 and the mortgage balance is $250,000, the homeowner has $150,000 in equity. Negative equity, often called “underwater,” occurs when the outstanding mortgage balance is greater than the home’s market value.
The Sale Process with an Existing Mortgage
Selling a home with an outstanding mortgage follows a standard real estate transaction timeline. After accepting an offer, the period leading to closing usually takes between 30 and 45 days, allowing time for appraisals, inspections, and buyer financing to be finalized. The critical difference with an existing mortgage lies in how the loan is satisfied at closing.
A neutral third party, such as a closing agent, settlement agent, or escrow officer, manages the final steps of the transaction. This agent, who could be a representative from a title company or an attorney, is responsible for coordinating all parties, ensuring documents are signed, and funds are properly exchanged. The closing agent will obtain the final mortgage payoff amount from the seller’s lender.
At closing, the buyer’s funds are transferred to the closing agent. The agent then uses these funds to pay off the seller’s existing mortgage in full before any remaining proceeds are distributed to the seller. This ensures the mortgage lien is removed from the property title, providing clear ownership to the buyer.
Sellers incur closing costs, which are deducted from the sale proceeds. These can range from 6% to 10% of the home’s sale price. Common seller expenses include real estate commissions, which are often the largest cost, ranging from 2.5% to 6% of the sale price. Other costs may include owner’s title insurance, transfer taxes, escrow or settlement fees, and prorated property taxes. After all deductions, any remaining equity is paid to the seller, typically within one to three business days, most commonly via wire transfer.
Selling When Your Home’s Value is Less Than Your Mortgage
Selling a home for less than its outstanding mortgage balance is complex due to negative equity. Sale proceeds alone will not cover the full mortgage amount. Homeowners have primary approaches to consider.
One option is for the seller to bring cash to closing to cover the difference between the sale price (minus closing costs) and the outstanding mortgage balance. For example, if a home sells for $200,000 but has a mortgage balance of $220,000, the seller would need to provide $20,000 at closing, in addition to other selling costs, to satisfy the debt. This approach allows for a traditional sale but requires the seller to have readily available funds.
Another option is a short sale, where a homeowner sells their property for less than the mortgage amount, with lender approval. Short sales are for homeowners facing financial hardship who cannot make mortgage payments. This process involves negotiating with the mortgage lender to accept a reduced payoff amount. While a short sale can help avoid foreclosure, it is complex, requires lender consent, and may take months to finalize.