Selling A House with A Mortgage

Selling A House with A Mortgage

It’s not unusual to sell a home while still owing money on a mortgage. Here’s a guide to help you understand how home equity works, what it means to pay off your loan, and how to handle an existing mortgage during the selling process.

Can You Sell a House While You Have a Mortgage?

Absolutely! Selling a home with a mortgage is quite common. In fact, the majority of U.S. homeowners—about 60%—have a mortgage. According to the National Association of Realtors®, homeowners typically sell their homes after just 10 years, even though many mortgages last for 30 years. If you’re thinking about selling, your mortgage lender can provide a payoff quote, which tells you how much you still owe. Keep in mind that when the sale goes through, your mortgage will need to be paid off with the proceeds.

What Happens When You Sell a House Before the Mortgage Is Paid Off?

Ideally, when you sell your home, the sale price should cover the outstanding balance of your mortgage, along with any additional costs like closing fees and secondary loans (such as home equity lines of credit or reverse mortgages). Be sure to check if your lender charges a prepayment penalty—some lenders impose fees for paying off the mortgage early, especially if it’s within the first few years.

After the sale, once the mortgage is settled, the remaining funds—your home equity—are yours. You can either keep it or use it as a down payment for your next home. If you’re buying before selling, you might consider a bridge loan to cover your new down payment, but keep in mind that these short-term loans can be expensive, especially in a rising interest rate environment.

If you owe more on the mortgage than your home is worth (a situation known as being “underwater”), you’ll need to pay the difference, or explore options with your lender to move forward with the sale.

What Happens to a Mortgage When You Sell?

In a typical sale, the buyer’s payment will go toward paying off the mortgage, plus any related fees. Once the mortgage is fully paid off, it’s done—you no longer owe anything on that loan.

Can You Keep Your Mortgage Rate If You Sell Your House?

In certain cases, you might be able to transfer the terms of your current mortgage to a new property. This is known as “porting” a mortgage, and it can be a way to keep your favorable interest rate. However, this requires lender approval, and you’ll need to reapply to ensure your credit and finances are still in good standing. If you’re upgrading to a more expensive home, you can use your accumulated equity or savings to bridge the gap.

What If Your Home Loses Value Before Selling?

If your home’s value drops below the mortgage balance, you’re in a situation called negative equity. While it might be tempting to sell to get out of this situation, it often makes more sense to stay and continue paying off your loan until the market improves. If you’re struggling to keep up with payments, contact your lender immediately—they might offer solutions like loan modifications, repayment plans, or forbearance to help you through tough times.

What Happens If You Have to Sell for a Loss?

If you’re determined to sell an underwater home, you’ll need to either cover the difference out of pocket or work with your lender to arrange a “short sale.” In a short sale, the lender allows you to sell the home for less than what’s owed, but this typically requires proof of financial hardship and can take a long time to finalize. Short sales are also publicly listed, which can deter some buyers. However, if you can afford to cover the shortfall yourself, you can sell at a loss and move forward.

What Are the Different Types of Home Equity?

Understanding the types of equity you have in your home will help you decide whether buying before selling is financially feasible:

• Investment equity: The money you’ve put into the home through your down payment, renovations, and principal mortgage payments.
• Earned equity: The increase in your home’s value over time due to appreciation in the real estate market.

Each type of equity plays a role in determining your financial options as you plan your next steps.

This guide should help clarify what to expect when selling a home with a mortgage, as well as the factors to consider when managing your mortgage during the process. Whether you still have questions about this process or are ready to take the leap and sell your house, consider calling Homeinc. We are a team of professionals that specialize in buying houses, no matter the condition.