Many homeowners ask the same question when thinking about selling: “Can I sell my house if I still have a mortgage?” The answer is simple: Yes, you can. In fact, most homes sold today still have a mortgage balance. Equity is the difference between your home’s market value and what you still owe.
Selling is straightforward if you’ve built up positive equity. However, the process requires more strategy if you’re in negative equity (often called “underwater”). Let’s break down how it all works.
Understanding the Mortgage Factor
A mortgage doesn’t prevent you from selling. It’s considered an encumbrance on the property, meaning the lender has a financial claim. However, this isn’t a roadblock. During closing, the mortgage gets paid off using the buyer’s funds, and the lender releases their claim.
Lenders allow sales to go through because they guarantee repayment from the proceeds. The only serious challenge arises if the loan balance exceeds the property’s value, creating negative equity.
Roadmap to Selling with a Mortgage
1. Confirm the Loan Payoff Amount
Your first step is to request a payoff statement from your lender. This official document tells you exactly what you owe on the closing day, including interest, fees, or penalties. Since mortgage balances change monthly, get an updated statement before the sale closes.
2. Figure Out Your Home’s Market Position
Next, determine how much your home is worth. Use:
- Comparable sales (comps) in your neighborhood.
- Automated valuation tools (AVMs) for quick online estimates.
- Professional appraisals for the most accurate value.
Once you know the likely selling price, subtract the mortgage payoff, real estate agent commission, and closing costs. This gives you your net proceeds, the money you’ll actually keep.
3. Choose the Right Agent and Pricing Strategy
An experienced real estate agent is key. They’ll help you:
- Set a competitive listing price.
- Market your property effectively.
- Provide a seller’s net sheet that outlines your expected profit after all expenses.
This ensures you’re making informed decisions with each offer.
4. Finalize the Deal at Closing
When you accept an offer and move to closing:
- The sale proceeds are used to pay off your lender in full.
- Closing costs and commissions are deducted.
- The remaining balance is your profit, the money you take home.
When Equity Turns Negative
Not every homeowner is in positive equity. You’re underwater if your mortgage balance exceeds your home’s current value. Options include:
- Short Sale: Selling for less than you owe, with lender approval, damages your credit but helps you avoid foreclosure.
- Paying Out of Pocket: Protecting your credit history by using savings or investments to cover the difference.
- Renting or Waiting: Holding onto the property until values rise or renting it out to cover payments.
Carefully evaluate these strategies with your financial goals in mind.
Planning for Your Next Move
Most sellers are also buyers. If you’re purchasing a new property before your current one sells, you have options:
- Apply for a new mortgage if your finances can support two loans.
- Bridge Loans provide short-term funding for a down payment until your home sells.
- Buy-before-you-sell programs (from companies like Knock or Orchard) allow you to purchase your next home first and then sell your current one stress-free.
Timing is everything, so work closely with your real estate agent and mortgage broker.
Closing Out Your Loan Obligation
At settlement, your mortgage is completely paid off. A few things to note:
- Some lenders charge prepayment penalties if you pay off early.
- If you had an escrow account, unused funds (for taxes or insurance) will be refunded after the sale.
Once the closing is complete, you’re free of that mortgage debt.
Final Takeaway
Selling a house with a mortgage is not only possible, it’s the norm. With enough equity, the process is smooth and rewarding. If you’re underwater, careful planning and smart decisions can still get you to the finish line.
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