Can I Sell My House With a Mortgage?

Selling a house with an outstanding mortgage is common. The existing mortgage debt is settled as part of the sale transaction, typically at closing, using funds from the sale. This article outlines the general process and some alternative scenarios for selling a home with a mortgage.

Understanding Your Mortgage and Equity

Homeowners can determine their current mortgage payoff amount by contacting their loan servicer. This information is often accessible through online portals or by requesting a formal payoff statement from the lender. A payoff statement provides the precise amount required to fully satisfy the loan on a specific date, encompassing the principal balance, any accrued interest, and applicable fees.

Equity represents the portion of your home’s value that you truly own. It is calculated by subtracting the outstanding balance of all loans secured by the property, primarily your mortgage, from the home’s current market value. For example, a property appraised at $500,000 with a $300,000 mortgage balance would have $200,000 in equity. Negative equity, or being “underwater,” occurs when the outstanding mortgage balance exceeds the property’s current market value.

Understanding these financial figures is important before selling, as they directly influence the financial outcome. Homeowners must also account for estimated selling costs, which generally include real estate agent commissions (typically 5% to 6% of the sale price). Additional closing costs, such as title insurance, transfer taxes, and attorney fees, can add another 2% to 5% of the sale price. Calculating potential net proceeds involves subtracting the mortgage payoff amount and all estimated selling costs from the anticipated sale price. This helps determine if the sale will yield cash back, break even, or require the seller to bring additional funds to closing.

The Mortgage Payoff Process During Sale

During a home sale, a neutral third party, known as the closing agent, manages the financial transactions. This entity, such as an escrow company, title company, or real estate attorney, ensures all conditions of the sale contract are met and funds are properly disbursed.

The closing agent initiates the mortgage payoff process by requesting an official payoff statement directly from the seller’s mortgage lender. This statement details the exact amount necessary to pay off the loan in full, including the principal balance, any accrued interest up to the closing date, and any outstanding fees or penalties. This precise figure is obtained shortly before the scheduled closing to ensure accuracy.

At closing, the sale proceeds from the buyer are allocated according to the settlement statement. The first disbursement is the full payment of the seller’s existing mortgage. This ensures the mortgage lender is fully compensated, and their financial claim, or lien, on the property is removed.

After the mortgage is satisfied, other closing costs and fees associated with the sale are paid from the remaining proceeds. These include real estate commissions, title insurance premiums, transfer taxes, and recording fees, all itemized on the closing disclosure document. Any funds remaining after the mortgage payoff and all other agreed-upon closing costs are then disbursed directly to the seller as their net proceeds.

Once the mortgage loan is fully paid off, the lender issues a lien release document. This document confirms the mortgage debt is satisfied and the lender no longer has a claim against the property. The closing agent ensures this document is properly recorded with the appropriate county office where the property deed is held. Recording the lien release clears the property’s title, signifying it is free and clear of that specific mortgage encumbrance, which is necessary for transferring a clear title to the new buyer. The closing agent handles all financial transfers; the seller does not directly send money to their mortgage lender.

Alternative Selling Options with a Mortgage

A short sale occurs when a homeowner sells their property for less than the outstanding mortgage balance, and the lender agrees to accept this reduced amount. This option is for homeowners facing significant financial hardship, such as job loss or medical emergencies. Initiating a short sale requires extensive negotiation with the mortgage lender, including providing detailed documentation of financial distress. The lender reviews the proposed sale price and conditions, often requiring a financial analysis of the homeowner’s situation. The short sale process can be lengthy and complex, often taking several months, and requires the lender’s explicit approval of the sale terms before closing.

Mortgage assumption involves a buyer taking over the seller’s existing mortgage, including its remaining balance, interest rate, and terms. The buyer becomes responsible for the ongoing mortgage payments. This can be appealing if the existing mortgage has more favorable terms compared to current market offerings.

Mortgage assumption is not universally available and is generally rare for conventional mortgages. It is more common with certain government-backed loans, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). Even with these loans, the buyer must meet the lender’s qualification criteria, including credit score and debt-to-income ratio, and the lender must formally approve the assumption. In many cases, the original borrower may or may not be released from liability, depending on the specific loan terms and the lender’s approval process.