Can I Sell My House With a Mortgage?

Selling a home with an existing mortgage is a common practice. Homeowners frequently sell their property before fully paying off their home loan, allowing them to transition between properties even with an outstanding balance. The mortgage is addressed as part of the transaction.

Handling Your Mortgage During the Sale

When you sell your home, the outstanding mortgage balance is paid in full at closing from the sale proceeds. This clears the property’s title of the lien, allowing it to be transferred to the new owner.

The mortgage payoff statement, also called a payoff letter, is obtained from your mortgage lender by you or your closing agent. This document details the exact amount required to satisfy the loan on a specific date.

The payoff statement specifies the principal balance, accrued interest from the last payment date (often calculated daily), and any late fees, administrative charges, or recording fees.

It also indicates any prepayment penalties, if applicable. The statement specifies a “good through” date, the expiration date for the quoted payoff amount. If the loan is not paid off by this date, a new statement will be necessary due to additional accrued interest.

At closing, the closing agent channels a portion of the sale proceeds to your mortgage lender, satisfying the mortgage and releasing the lien. The remaining funds, after all selling costs and the mortgage payoff are deducted, are disbursed to you.

Assessing Your Home’s Financial Standing

Understanding your home’s financial standing, particularly its equity, is important for a successful sale. Home equity is the portion of your property you own, calculated as the difference between its current market value and your total outstanding mortgage balance, including any other secured loans or liens. For instance, if your home is valued at $400,000 and your outstanding mortgage balance is $150,000, you would have $250,000 in equity.

The most common scenario is positive equity, where your home’s market value exceeds your outstanding mortgage balance. After the property sells and the mortgage is paid from proceeds, any remaining funds after selling costs become your net profit. This profit can be used for a down payment on a new home or other financial goals.

A less desirable situation is negative equity, often called “underwater” or “upside-down.” This occurs when you owe more on your mortgage than your home’s current market value. Factors include declining property values, a small down payment, or additional loans against the home.

If you have negative equity and need to sell, one option is bringing cash to closing to cover the difference between the sale price and the total amount needed to pay off your mortgage and selling costs. For example, if you owe $300,000 but sell for $280,000, you would need to pay $20,000 plus closing costs to complete the sale.

Another option is a “short sale,” though it is more complex and typically a last resort. In a short sale, your mortgage lender agrees to accept less than the full amount owed to facilitate the property’s sale. This usually requires demonstrating financial hardship and obtaining lender approval. While it can help avoid foreclosure, it involves lender negotiation and can impact your credit.

The Selling Process

Selling a home involves several procedural steps. The initial stage focuses on preparing your home for the market, including repairs, decluttering, cleaning, and staging. Understanding your home’s market value is an early step, often achieved through a comparative market analysis (CMA) from a real estate agent. A CMA estimates your home’s value by analyzing recently sold comparable properties in your area, considering size, condition, and features.

Once prepared and priced, the next stage involves listing and marketing the property. Your real estate agent will use channels like online listings, professional photography, and open houses to attract buyers. Effective marketing aims to generate interest and offers.

After listing, you will receive and negotiate offers from prospective buyers. Evaluating offers involves more than price; it includes contingencies like home inspections, appraisals, and buyer financing approval. Your agent will assist in negotiating terms that align with your selling goals, working towards a mutually agreeable contract.

Upon accepting an offer, the transaction enters the “under contract” or “escrow” phase. This period involves due diligence activities. Buyers conduct home inspections to assess the property’s condition, and an appraisal ensures the home’s value supports the buyer’s loan. Title searches verify clear ownership and identify any liens or encumbrances. The buyer’s loan approval also progresses.

The final stage is closing day, where all parties sign legal documents and funds are disbursed. As the seller, you sign documents transferring the property’s deed. The closing agent facilitates payment of your outstanding mortgage from the sale proceeds to your lender, removing the lien and ensuring the buyer receives clear title.

Various selling costs impact your net proceeds. Real estate commissions, typically paid by the seller, are often the largest expense (3% to 6% of the sale price). Other common closing costs include transfer taxes, title-related fees (like title insurance for the buyer), and escrow fees. Any prorated property taxes or homeowners association fees up to the closing date will also be settled.