How Does Selling a House With a Mortgage Work?

Preparing by Understanding Your Mortgage

Selling a home begins with understanding existing mortgage obligations. Homeowners should determine their outstanding loan balance, the principal amount owed to the lender. This balance fluctuates daily due to accrued interest and payments, so obtaining a current figure is important.

The mortgage type influences the payoff process. Regardless of the type, the most accurate way to confirm the exact amount to satisfy the loan is to request a “payoff statement” or “payoff quote” from the mortgage servicer. This document provides a specific dollar amount, valid for 7 to 30 days, including principal, accrued interest, and fees calculated up to a future date.

Homeowners should review their mortgage agreement for prepayment penalties. Some loan types might impose a fee for paying off the loan before a specified term. These penalties, if applicable, are included in the payoff statement and reduce the seller’s net proceeds.

Beyond the primary mortgage, identify any other liens or encumbrances against the property. This includes home equity lines of credit (HELOCs), second mortgages, or property tax liens. Each obligation requires a separate payoff statement and must be settled at sale to convey clear title.

Navigating the Sale Process

After understanding mortgage obligations, the next phase is preparing the home for market. This includes repairs, decluttering, and staging to enhance appeal. Many sellers engage a real estate agent for market insights, pricing strategies, and managing sale complexities.

After preparation, the home is listed for sale, typically via a Multiple Listing Service (MLS). Marketing efforts, including photography and virtual tours, attract interest and schedule showings. The goal is to generate competitive offers aligning with the seller’s financial objectives.

Sellers evaluate offers based on price, terms, and buyer qualifications. This leads to negotiations where buyer and seller agree on a final purchase price and conditions. A legally binding purchase agreement is then drafted and signed, outlining transaction specifics.

The purchase agreement includes contingencies that must be satisfied before closing. Common contingencies involve a satisfactory home inspection, an appraisal confirming property value, and the buyer securing financing. These conditions protect both parties, ensuring criteria are met before finalizing the transaction.

Settling the Mortgage at Closing

The home sale culminates at closing, where property ownership transfers. A neutral third party, often a title company or attorney, serves as the closing agent, facilitating the transaction and ensuring all financial and legal requirements are met. The closing agent manages the flow of funds and documents.

A primary responsibility of the closing agent is to obtain the final mortgage payoff statement directly from the seller’s lender. This statement, updated to the closing day, provides the precise amount to satisfy the outstanding loan, including accrued per diem interest. The document’s accuracy is important to ensure the mortgage is extinguished.

At closing, the closing agent disburses funds provided by the buyer or their lender. The first priority for these funds is typically the payoff of the seller’s existing mortgage(s) and any other identified liens. This direct payment ensures the property is free of debt when transferred to the new owner.

The seller does not directly pay their mortgage at closing; the closing agent manages the transfer to the mortgage servicer. After payoff, the mortgage lender issues a “lien release” or “satisfaction of mortgage” document. This document is recorded in public records, confirming the mortgage is fully paid and the lender no longer holds a claim on the property.

Calculating Your Net Proceeds

Defining “net proceeds” is important for sellers, as it represents the cash received after all expenses and mortgage payoff. This figure starts with the gross sale price, then deducts various transaction costs. Understanding these deductions clarifies the sale’s financial outcome.

A significant deduction is the outstanding mortgage balance, as detailed in the final payoff statement. Any associated payoff fees or prepayment penalties are also subtracted. Real estate agent commissions, typically 5% to 6% of the sale price, are another substantial expense.

Additional closing costs further reduce gross proceeds. These include title insurance premiums, escrow fees, and transfer taxes. Attorney fees and recording fees are also itemized deductions.

Prorated expenses, such as property taxes and HOA dues, are calculated up to the closing date and adjusted between buyer and seller. Any seller concessions or credits negotiated with the buyer also directly reduce net proceeds. After all deductions, the remaining balance is the net proceeds, typically disbursed to the seller via wire transfer or check.