Do You Have to Pay Mortgage When House Is for Sale?

When selling a property, homeowners often wonder about their ongoing mortgage obligations. Many believe that once a house is listed for sale, mortgage payments might cease or be put on hold, but this is not the case. Understanding the financial responsibilities involved, especially concerning an existing mortgage, helps homeowners prepare and avoid unexpected challenges.

Maintaining Mortgage Payments During the Sale

Homeowners remain responsible for their mortgage payments while their house is listed for sale and throughout the entire selling process. The loan agreement between the homeowner and the lender remains active, meaning the obligation to make timely payments of principal, interest, property taxes, and insurance (PITI) continues until the property’s ownership officially transfers to the buyer at closing. This ongoing responsibility exists because the lender still holds a lien on the property, which is not released until the mortgage is fully satisfied.

These payments must continue from the moment the home is listed until the closing date, which can take several weeks or even months after an offer is accepted. Lenders require all payments to be current up to the closing date, so sellers must maintain their regular payment schedule even with an accepted offer. Failing to make these payments during the sale period can lead to negative consequences.

Missed mortgage payments can negatively impact a homeowner’s credit score and incur late fees. If payments become delinquent, after 90 to 120 days of missed payments, the lender may initiate foreclosure proceedings. Even if a home is under contract, skipping a payment is inadvisable as it can disrupt the sale, result in penalties, and potentially delay or jeopardize the transaction. Sellers should budget for continued mortgage payments and associated costs throughout the selling timeline.

Mortgage Resolution at Closing

The existing mortgage is paid off at the time of sale, using the transaction proceeds. This is a standard part of the real estate closing, where the outstanding mortgage balance, accrued interest, and fees are deducted directly from the sale funds. Before closing, the lender provides a “payoff statement” detailing the exact amount required to satisfy the mortgage, including the remaining loan balance, interest accrued up to the closing date, and potential fees. This payoff amount can differ from a regular mortgage statement due to daily interest accrual.

The closing agent or title company facilitates this payoff. They receive the buyer’s funds and disburse the necessary amount directly to the seller’s mortgage lender. This ensures the lender’s lien on the property is released, providing the buyer with a clear title free of the seller’s mortgage. Homeowners do not directly pay the mortgage at closing; it is managed as part of the overall financial settlement.

After the mortgage is paid off, any remaining funds from the sale proceeds, after accounting for other closing costs and seller expenses, become the seller’s net proceeds. These net proceeds are then disbursed to the seller, often via wire transfer or check. If the seller had an escrow account for property taxes and insurance, any remaining balance will be refunded by the lender within 30 days after the loan is paid off.

Financial Considerations Beyond the Mortgage

Selling a home involves financial responsibilities beyond the mortgage itself. Homeowners must continue to account for ongoing property taxes, which are prorated and paid up to the date of closing. These taxes are calculated based on the property’s assessed value and local tax rates, and sellers are responsible for their portion until ownership transfers.

Homeowners insurance premiums also remain an ongoing expense until the sale is finalized and the new owner takes possession. While some of these costs might be held in an escrow account as part of the mortgage payment, the seller remains liable for them until closing. Utility bills, including electricity, water, and gas, continue to be the seller’s responsibility until the final walkthrough or closing date, depending on local agreements.

If the property is part of a homeowners association (HOA), sellers are required to pay HOA fees up to the closing date. These fees contribute to the maintenance of common areas and amenities within the community. Sellers should verify any outstanding special assessments levied by the HOA, as these also need to be settled at closing. Budgeting for these continuing expenses, in addition to mortgage payments, is crucial when selling a home.