Can You Sell a House While Paying a Mortgage?

Selling a home while still carrying a mortgage is a common scenario for many homeowners. This process involves coordinating with your mortgage lender and the closing agent who facilitates the transaction. The existing mortgage is handled as part of the sale, with the outstanding balance paid off from the proceeds at closing. This approach ensures the property title is cleared for the new buyer.

Understanding Your Current Situation

Before initiating the sale of your home, understanding your financial standing is an important step. This involves obtaining an accurate mortgage payoff amount and estimating your property’s current market value. Knowing these figures helps assess the financial viability of selling your home.

To determine your mortgage payoff amount, contact your mortgage servicer. This is not simply the principal balance on your most recent statement; a payoff statement includes the principal, accrued interest up to a specific date, and any applicable fees. You can request this statement through your lender’s online portal, by phone, or by written request. The payoff statement provides the exact amount needed to satisfy the loan on a projected closing date, often including a “per diem” interest amount.

Estimating your home’s current market value is another important step to understand your potential proceeds. This can be achieved through a comparative market analysis (CMA) provided by a real estate agent, which evaluates recent sales of similar properties in your area. Online valuation tools can offer an initial estimate, though a professional appraisal provides a more precise valuation of your home’s worth.

With these two figures, you can calculate your estimated home equity, which represents the portion of your home’s value you own outright. Equity is calculated by subtracting your total outstanding mortgage balance and any other liens from your home’s current market value. Having positive equity means your home’s value exceeds what you owe, providing funds after the sale to cover costs and potentially profit. Conversely, negative equity occurs when you owe more than your home is worth, which will require a different financial approach.

The Sale and Mortgage Payoff Process

Once you have assessed your financial situation, the steps of selling your home and repaying the mortgage begin. This process starts with listing your home for sale and accepting an offer from a buyer. Throughout the transaction, a third party, such as an escrow company, title company, or real estate attorney, plays a central role.

This closing agent is responsible for managing all funds and documents related to the sale. A key responsibility involves requesting a final mortgage payoff statement from your mortgage lender. This statement confirms the amount required to clear your loan as of the scheduled closing date.

At the closing table, the existing mortgage is paid off from the proceeds of the sale. The funds provided by the buyer are channeled through the closing agent, who then disburses the necessary amount to your mortgage lender. This means you do not handle the sum required to pay off the mortgage yourself.

After the mortgage is fully paid, the lender will issue a lien release. This document confirms the property is no longer encumbered by that mortgage, clearing the title for the new owner. This process, facilitated by the closing agent, ensures the legal and financial aspects of transferring ownership are handled.

Financial Implications of Selling

Selling a home involves various financial considerations beyond paying off the mortgage. Sellers incur closing costs, which impact the net proceeds from the sale. These expenses are part of the transaction and are deducted from the sale price at closing.

Common seller closing costs include real estate agent commissions, which range from 5% to 6% of the home’s sale price, often split between the buyer’s and seller’s agents. Other expenses may include owner’s title insurance, transfer taxes, escrow fees, and attorney fees depending on regional requirements. Sellers might also be responsible for prorated property taxes or homeowners association (HOA) fees up to the closing date. Overall, seller closing costs, including commissions, can range from 6% to 10% of the sale price.

To determine your net proceeds, subtract the mortgage payoff amount and all seller closing costs from the home’s sale price. The formula is: Sale Price – (Mortgage Payoff Amount + All Seller Closing Costs) = Net Proceeds. This calculation provides a clear picture of the funds you will receive after all obligations are met.

If the sale price is insufficient to cover the mortgage payoff and all selling costs, a homeowner faces negative equity. The seller may need to bring additional funds to closing to cover the shortfall. Another option is a short sale, which involves the lender agreeing to accept a sale price less than the outstanding mortgage balance. A short sale requires lender approval and is pursued to avoid foreclosure, though it can be a lengthy process.