Can I Sell My House If I Have a Mortgage?

Selling a home with an outstanding mortgage is a common occurrence. Most home sales involve properties with existing mortgages, demonstrating that having a mortgage does not prevent a property sale. Understanding the obligations involved in selling a mortgaged home provides clarity and helps homeowners make informed decisions.

Understanding Mortgage Obligations During Sale

When a property with an existing mortgage is sold, the mortgage itself is a legal claim, known as a lien, against the property. This lien signifies the lender’s security interest in the home until the loan is fully repaid. To transfer clear ownership to a new buyer, this lien must be satisfied and formally released. The primary way this obligation is met is by paying off the outstanding mortgage balance from the proceeds of the home sale at the time of closing.

The exact amount required to fully pay off the loan is detailed in a mortgage payoff statement, also called a payoff letter or quote. This statement, provided by the loan servicer, includes the remaining principal balance, accrued interest up to a specific payoff date, and various fees. Unlike a regular monthly mortgage statement, it accounts for daily interest accrual and all associated costs, ensuring the precise amount needed to close the loan. Lenders may charge a small fee, under $30, for generating this statement.

The closing attorney or escrow agent facilitates this payoff. These professionals ensure the accurate amount is paid to the lender and that the lien is released from the property’s title. They rely on the payoff statement to confirm the total sum due. Once the mortgage is paid off, the lender is legally obligated to release the lien, which is then recorded in the public records of the county where the property is located.

Steps for Selling a Home with a Mortgage

The process of selling a home with a mortgage begins by determining the amount needed to satisfy the loan. Homeowners should request a mortgage payoff statement from their loan servicer. This document provides the exact figure, including principal, accrued interest, and any fees. Knowing this amount helps calculate potential net proceeds and set a realistic listing price.

After obtaining the payoff statement, the next step involves preparing and listing the property for sale, often with a real estate agent. Once an offer is accepted and a purchase agreement signed, the transaction moves towards closing. During this period, the escrow or title company manages the financial aspects of the sale. They coordinate with all parties, including the seller’s mortgage lender, for ownership transfer.

The closing is where the mortgage is paid off. The buyer’s funds are channeled through the escrow or title company, who disburses the amount directly to the seller’s mortgage lender. This payment clears the outstanding debt, and the lender then releases their lien on the property. The release of lien removes the lender’s claim and allows for the clear transfer of the home’s title to the new owner.

The escrow agent or title company handles the payoff, ensuring the correct amount is sent and the lien release is filed with the county recorder’s office. The seller is responsible for making regular mortgage payments up until the closing date. Proceeds from the sale are used to cover the mortgage payoff and other selling costs. Any remaining funds are then disbursed to the seller.

Financial Considerations When Selling a Mortgaged Property

Selling a home with a mortgage involves several financial considerations, mainly calculating the net proceeds from the sale. Home equity represents the difference between the home’s current market value and the outstanding mortgage balance. The sale price, minus the mortgage payoff amount and all selling expenses, determines the cash received by the seller.

Closing costs reduce the net proceeds from a home sale. These costs range from 6% to 10% of the sale price for sellers. Common seller closing costs include real estate agent commissions, which can be a large portion, ranging from 5% to 6% of the sale price. Other expenses include title insurance for the buyer, escrow or settlement fees, transfer taxes, and prorated property taxes.

If the sale price is less than the total amount owed on the mortgage, a “short sale” may occur. This happens when the property’s value has fallen below the outstanding mortgage balance. In a short sale, the lender must agree to accept less than the full mortgage amount. All proceeds from a short sale go directly to the lender. The homeowner may still be responsible for the remaining difference, depending on the lender’s agreement and state laws.

Conversely, if there is equity, the seller receives more funds after all obligations are met. For primary residences, sellers may exclude a portion of capital gains from taxation. Single filers can exclude up to $250,000, and married couples filing jointly can exclude up to $500,000 of gain, if they owned and used the home as their main residence for at least two of the five years preceding the sale. This exclusion applies to the profit, not the sale price, and can be claimed every two years.