Can I Sell My House If It’s Not Paid Off?

You can sell a house even if a mortgage is still outstanding. Many homeowners sell before fully paying off their loans. The process involves using the sale proceeds to satisfy the existing mortgage balance at closing. This ensures a clear title is transferred to the new owner, and the seller’s financial obligation to their lender is fulfilled.

Determining Your Current Financial Position

Before beginning the selling process, understanding your financial standing is an important first step. This involves obtaining an accurate mortgage payoff amount and estimating your home’s current market value. These figures help in calculating your potential equity or debt in the property.

To ascertain the exact amount required to fully satisfy your mortgage, you need to request a payoff statement from your current mortgage servicer. This document is distinct from your monthly mortgage statement, as it includes the remaining principal balance, accrued interest up to a specific future date, and any applicable fees. You can typically request this statement online through your servicer’s portal, by phone, or via mail, and it usually arrives within seven business days.

Next, determine a realistic market value for your home. This can be achieved by consulting a real estate agent for a comparative market analysis (CMA), which provides an estimate based on recent sales of similar properties in your area. While online valuation tools offer quick estimates, a professional appraisal provides the most accurate valuation, though it comes with a cost.

With these figures, you can calculate your estimated equity or potential debt. Equity is the difference between your home’s estimated market value and your mortgage payoff amount, minus selling costs. If the mortgage payoff and selling costs exceed your home’s value, you would have negative equity, sometimes referred to as being “underwater.” Selling costs typically range from 8% to 10% of the sale price, encompassing real estate commissions and closing costs.

Common Sale Scenarios with an Existing Mortgage

Your financial position largely influences the specific scenario for selling your home. Most sales fall into one of three categories, each with distinct characteristics regarding how the existing mortgage is handled.

The most common situation is selling with positive equity, also known as a traditional sale. In this scenario, your home’s sale price is sufficient to cover your mortgage payoff amount, all associated selling costs, and potentially leave you with a profit. The proceeds from the sale are primarily used to pay off the outstanding mortgage, ensuring the debt is fully satisfied.

Conversely, if you find yourself with negative equity, where the amount owed on your mortgage exceeds your home’s market value, a short sale might be an option. A short sale occurs when your mortgage lender agrees to allow you to sell the property for less than the amount you owe. This process requires the lender’s approval, as they are agreeing to accept a loss on the loan. Short sales are often pursued by homeowners facing financial hardship to avoid foreclosure.

In some less common instances, a buyer may assume your existing mortgage. This means the buyer takes over your mortgage payments and obligations. While this can occur, it is generally rare for typical residential mortgages and often requires the lender’s approval. Mortgage assumptions are more frequently seen with certain government-backed loans, such as FHA or VA loans, provided the buyer meets the lender’s and loan program’s qualification criteria.

Steps to Selling Your Home with a Mortgage

Selling a home with an outstanding mortgage involves a structured process, ensuring the loan is properly addressed at closing. Understanding these steps helps navigate the transaction smoothly.

The initial phase involves preparing your home for sale and engaging a real estate agent. Your agent will assist in pricing the property competitively and marketing it to potential buyers. After preparing your home, it will be listed for sale, and showings will commence to attract offers.

Once offers are received, you will review them with your agent and negotiate terms, including the sale price. After an offer is accepted, the transaction moves into escrow or title, where an impartial third party, such as an escrow company or title company, facilitates the closing process. This entity handles funds and documents to ensure a legal and secure transfer of ownership.

A key procedural step handled by the escrow or title company is ordering the final mortgage payoff statement from your lender. This ensures the precise amount needed to close your loan on the scheduled closing date is obtained, including any per diem interest or outstanding fees. The escrow or title company will use this statement to allocate funds correctly at closing.

On closing day, all parties involved, including the buyer, seller, and their representatives, sign the necessary legal documents. The title or escrow company manages the financial aspects, collecting the buyer’s funds and disbursing them. The outstanding mortgage is paid off directly from the sale proceeds by the title or escrow company to your lender. This ensures the mortgage is satisfied, and the lien on your property is removed, allowing a clear title to be transferred to the buyer. After the mortgage is paid and all selling costs are covered, any remaining net proceeds are then disbursed to you.