Can You Sell Your House While You Have a HELOC?

A Home Equity Line of Credit (HELOC) functions as a revolving credit line, much like a credit card, secured by the equity in your home. Homeowners borrow against their property, using the home as collateral. Yes, it is generally possible to sell your house even if you have an active HELOC. However, because a HELOC establishes a lien on your property, this obligation must be formally addressed and satisfied as part of the home sale process.

Understanding the HELOC’s Role in a Home Sale

A HELOC represents a lien on your property, similar to your primary mortgage. This means the lender has a legal claim against your home, which secures the funds you have borrowed. For a clear title to be transferred to a new buyer, all existing liens, including the HELOC, must be paid off. The outstanding balance of your HELOC, encompassing any accrued interest and associated fees, will be deducted from the proceeds generated by the sale of your home.

Even if you have not fully drawn on your HELOC or if its balance is currently zero, the account needs to be formally closed and the lien released by the lender. This step ensures that the property’s title is free of any encumbrances, allowing for a smooth transfer of ownership to the buyer.

The Process of Satisfying a HELOC at Closing

The process of paying off and closing a HELOC during a home sale is primarily managed by the closing agent. You should inform your HELOC lender of your intent to sell the property. The title company or closing attorney, who facilitates the transaction, will request a final payoff statement from your HELOC lender.

This payoff statement provides the exact amount required to close the HELOC account on a specific date. At the closing of the home sale, the title company or closing agent will disburse the necessary funds directly from the sale proceeds to the HELOC lender. After receiving the full payoff amount, the HELOC lender is responsible for issuing an official lien release. This document formally removes their claim on your property, and it is typically recorded with the appropriate county office. Your primary role as the homeowner is to ensure all required information and authorizations are provided to your closing agent to facilitate this payoff and lien release.

Key Considerations When Selling with a HELOC

Selling a home with an active HELOC involves several specific considerations beyond the standard payoff process. A significant concern arises if the sale proceeds are insufficient to cover both your primary mortgage and the outstanding HELOC balance. In such situations, you may need to bring cash to the closing table to satisfy the remaining debt. Alternatively, it might be possible to negotiate with your HELOC lender for a partial payment or a repayment plan for the shortfall. In more challenging scenarios, exploring a short sale, where the lender agrees to accept less than the full amount owed, could be an option, though this typically requires lender approval and can impact your credit.

Some lenders may charge an early closure or prepayment penalty if the HELOC is paid off and closed within a certain timeframe, often within the first one to three years of opening the account. These fees can range from a few hundred dollars to a percentage of the original credit limit or outstanding balance. Maintaining clear and timely communication with your HELOC lender, real estate agent, and especially your title company or closing agent is highly recommended to prevent delays and ensure all financial obligations are met.