Older couple meeting with Realtor to sell home.

Can You Sell A House With A Mortgage?

5-Minute Read
Published on August 23, 2021

If you’ve decided to move but have a mortgage on your home, you might wonder if you can sell a house with a mortgage.

It’s a great question since a mortgage is a legally binding agreement that you must satisfy if you no longer own the home. Does having a mortgage on the home tie you in until you pay it off?

Find out more below.

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Are You Able To Sell Your House With A Mortgage?

Yes, you can sell your house with an existing mortgage. This is a common way to pay off a mortgage. The average homeowner stays in their home for 13 years, but some stay longer.

Knowing how to sell a house with a mortgage is important, though. The key is that you can sell your home for more than you owe on your mortgage. If this happens, you can pay the mortgage off and keep the proceeds to invest in your next home or use however you see fit.

If you didn’t sell your home for at least as much as you owe on the mortgage, you would owe the difference out of your own pocket. It’s best to know how much your home is worth and compare it to your current mortgage to make sure you have enough.

How Do You Sell A House With A Mortgage?

Before you can sell a house with a mortgage, there are certain requirements you must meet. First, your mortgage is a legal obligation, so you must satisfy it if you sell the house. In other words, you can’t sell the house and not pay off the mortgage. You must clear up any liens on the property before you sell.

Here’s how it works.

Get A Payoff Quote

Your first step to selling a house with a mortgage is to get a payoff quote. This will tell you how much you must pay your lender to satisfy your mortgage agreement and release the lien.

Your new lender will likely request the payoff quote for you. You can contact your current loan servicer and ask for a payoff quote if they don't. Some lenders even have automated systems on the phone or online that make it even easier.

Make sure you get your payoff quote through at least the date of the intended closing of the home. It’s best if you give yourself a few buffer days, too. You should also get the per diem interest charges if you were to go past the date for the payoff quote. This way, you’ll pay more than enough and can clear the lien.

Determine Home Equity

You’ll want to know how much home equity you have. It could help you when you buy your next home or make your investment. Some homeowners invest the entire amount of their current home equity in their new home. Others invest some of it but keep some of it liquid.

What you do depends on what you qualify for and how much money you already have saved for your down payment. Some sellers like to keep some of their proceeds liquid, while others invest it directly into their new home.

Earned Equity

Earned equity is the equity you earned in the home since you bought it. Say, for example, you bought your home for $150,000, and now it’s worth $250,000. So, you earned $100,000 in equity in the home just by the house appreciating. You didn’t necessarily have to do anything to earn this equity.

Home Investment Equity

Home investment equity is the equity you invest in the home yourself. So, for example, if you put 20% down on a $150,000 home, you have $30,000 in instant equity.

You also increase your equity each month as you make principal payments toward the loan. This lowers how much you owe and increases the difference between the home’s value and your mortgage balance.

Paying any windfalls or large amounts of money you earn toward your mortgage also increases your home investment equity. Every dollar you pay toward the home’s principal increases your equity.

Steps To Selling A House With A Mortgage

If you’re selling a house with a mortgage, there are specific steps you must take. They must be done in this order to ensure you satisfy your legal obligations.

Here’s how to sell a house with a mortgage.

First, Repay Your Mortgage Lender

Your first order of business when you sell your house is to pay off your mortgage lender. They have first lien position on your home and get paid first. Make sure you have an accurate payoff quote and follow up to satisfy the debt in full.

If there are remaining days of unpaid interest, make sure you pay them as quickly as possible to pay your loan off in full.

Pay Off Any Other Loans Or Liens

If your home has any other liens, you must also pay them off. Liens stay with the home, not the person. This means if you didn’t clear any outstanding liens on the property, the buyer might not be able to close on the home. In addition, mortgage lenders require a clear title. If there are outstanding liens, that’s impossible.

Common loans and liens you might have on your property include:

  • Second mortgage
  • Home equity line of credit
  • Tax liens
  • Mechanics liens

You must satisfy all liens on the property. Get ample proof that you paid them off in case anything comes up later stating otherwise.

Cover Fees And Closing Costs

You'll likely have transaction fees and closing costs if you sell a house with a mortgage or without one. While you won’t pay as many closing costs as the seller, you still have your fair share of costs to cover. The funds can come directly from the proceeds of the sale if you’re receiving enough to cover your mortgage amount and the closing costs.

Keep Remaining Funds

Once you pay off all liens on the home, including the first mortgage, any second mortgages or HELOCs, and any outstanding liens, the remaining funds go to you, the seller. You don’t have to use the funds a certain way either.

If you choose to reinvest the funds in your next home, it’s a great way to start homeownership with equity by making a large down payment. But, you can use the funds for any other purpose too. You’ll receive either a wire or check in the amount remaining.

The Bottom Line

If you wonder, “Can I sell a house with a mortgage?” – the answer is yes. However, before you commit to selling, you should talk to your real estate agent to determine the home’s value so you know how much money you have available to make your next real estate investment.

If you’re ready to buy your next home, get started today by getting approved for a loan, so you’re ready to buy a home right after selling.

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