Can You Sell a House With a Mortgage?

It is common to sell a house that still has an outstanding mortgage. The home loan is typically settled during the transaction process itself. Most homeowners find themselves in this situation, as mortgages often span 30 years while people tend to move after about 10 years of homeownership. This is a standard process, ensuring a smooth transfer of ownership and debt resolution.

Mortgage Payoff During the Sale

When selling a home with an existing mortgage, obtaining a payoff statement from your current lender is the primary financial step. This document provides the exact amount required to fully satisfy the loan on a specific date, accounting for the principal balance, accrued interest, and relevant fees. It is distinct from your monthly mortgage statement, which only shows the principal balance and upcoming payment, not the real-time amount needed for a full payoff.

It is advisable to request this payoff statement a few weeks before your anticipated closing date, providing the lender with the approximate closing timeframe. If the closing date changes, a new statement might be necessary, as the payoff amount fluctuates daily due to interest accrual. Any potential prepayment penalties, though less common with many modern mortgages, would also be detailed in this statement.

During the closing process, a neutral third party, often a title company or an escrow agent, manages the financial exchange. This closing agent receives the full sale proceeds from the buyer. From these funds, the closing agent directly deducts the mortgage payoff amount and remits it to your lender.

Sellers typically do not handle the funds designated for the mortgage payoff directly. This ensures the mortgage lien is properly discharged. Following the payoff, the lender is responsible for releasing the mortgage lien from the property’s title, confirming that the debt is cleared and the property can be transferred free of encumbrance.

Steps to Selling a House with a Mortgage

Selling a home with a mortgage begins with consulting a real estate agent, who can help evaluate your home’s market value and your existing mortgage balance. This initial assessment helps determine your potential equity, which is the difference between the home’s value and the outstanding loan amount. The agent also assists in preparing the home for sale, which might involve minor repairs or staging.

After preparation, your real estate agent will list the property, typically utilizing the Multiple Listing Service (MLS) and various online platforms to maximize exposure. They manage showings and open houses, marketing the home to attract interested parties. As offers come in, the agent helps you evaluate them, considering price, terms, and contingencies.

Negotiations are part of this stage, with your agent working to secure favorable terms. Once an offer is accepted, a purchase agreement is drafted, outlining the sale conditions and timelines. This agreement guides the transaction through subsequent steps, including inspections, appraisals, and securing buyer financing.

Closing finalizes the transaction. The closing agent, often a title company, facilitates the transfer of funds and documentation. Sale proceeds pay off your outstanding mortgage and seller-related closing costs. These costs, typically 6% to 10% of the sale price, include real estate agent commissions, transfer taxes, and attorney fees. These expenses are usually deducted directly from the sale proceeds, so you rarely need to bring additional cash to closing.

Specific Scenarios When Selling with a Mortgage

Selling with negative equity, known as a short sale, is one scenario that deviates from the standard process. This occurs when the outstanding mortgage balance exceeds the home’s market value. In a short sale, the lender must approve the transaction, agreeing to accept less than the full amount owed.

A short sale requires demonstrating financial hardship, such as job loss or medical expenses. The lender reviews the seller’s financial situation and property value before granting approval, a process that can extend over weeks or months. While sale proceeds go to the lender, they may or may not forgive the remaining balance, depending on state laws and negotiation. A short sale can avoid foreclosure, potentially causing less severe credit score damage.

Another less common situation is a mortgage assumption. A buyer takes over the seller’s existing mortgage, including principal balance, interest rate, and repayment terms. Mortgage assumptions are rare with conventional loans but are more common with government-backed mortgages, such as FHA, VA, and USDA loans.

For a mortgage assumption, the lender must approve the buyer, who needs to meet credit and income qualifications. The buyer typically pays the seller for any equity built up in the home, which is the difference between the home’s value and the mortgage balance. Sellers should ensure they receive a formal release of liability from the lender to avoid remaining responsible for the debt if the buyer defaults.