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If you currently owe money on your home loan and are ready to move, you may be grappling with whether you can sell a house before paying it off. What happens when you sell a house with a mortgage? Do you need to pay your home off before you sell?
To cut right to the chase: You can absolutely sell a house with a mortgage. In fact, it happens all the time. Most mortgages come with 15- or 30-year terms, while the average time people lived in their homes before selling in 2022 was 10 years, according to data from the National Association of Realtors.
“Here’s the big thing to understand: Most people have mortgages on their home,” says Kevin Bartlett, a top real estate agent in Southwest Florida who sells homes 49% quicker than other agents in his market. “And since the average person stays in their home for less than ten years, it’s extremely common to sell a home with a mortgage.”
So thankfully, you are not stuck in a home until you pay off every last dollar. Read on for what you need to know about what happens when you sell a mortgage, plus insights on how to gauge the right time to sell and set the right asking price when you still owe on the home.
Can You Sell A House With A Mortgage?
You can absolutely sell your home if you have a mortgage. Much of the process of selling a home with a mortgage is the same as selling a home you owe free and clear. The key difference is that the money you still owe your mortgage lender will come out of your sale proceeds.
Here’s an overview of what the process looks like:
- You’ll use the proceeds from the sale of your home to pay off your existing mortgage balance. Your lender will receive their payout at the time of closing.
- After satisfying the mortgage debt and covering the fees associated with selling a house, such as commissions and taxes, you will (hopefully!) have some profits to take home.
- If the amount received from the sale falls short of your outstanding mortgage balance and selling costs, you will have to cover the difference with funds other than those from the sale.
- Even in today’s slowing housing market, property values remain moderately high from the pandemic homebuying boom. Therefore, it’s uncommon for sellers to owe more than their home is worth, a situation known as being “underwater.”
- A mortgage is more likely to become underwater if a seller falls behind on mortgage payments, sells before they’ve gained much equity, or sells during a market downturn.
Ultimately, when it’s time to sell a home with a mortgage, the path isn’t one size fits all. You’ll need to evaluate how much equity you have in your home and your reasons for selling. Follow the steps below for an in-depth explanation of the mortgaged home sale process.
DISCLAIMER: This post is meant to be educational and should not be construed as financial or legal advice. If you need help navigating the decision to sell a house with a mortgage, HomeLight encourages you to reach out to a professional advisor.
1. Check your home value
HomeLight’s Home Value Estimator pairs housing market data from multiple trusted sources with details about your house that you personally share.
Input your address, answer the short questionnaire, and we’ll provide you with a near-instant estimate.
Keep in mind that our estimate tool is not a guarantee of what your home will sell for. On the open market, a buyer may be willing to pay more or less than what your estimate shows.
Your real estate agent will give you a more precise number using a comparative market analysis (CMA) that analyzes the value of your home based on comparable sales, a tool that you will use to price your home when the day comes.
An agent will be able to pull comparable sales from their local MLS, giving them greater insights into the area. An agent will also likely request to do a walkthrough of your home to inform their assessment.
2. Contact your lender
Next, you want to find out how much you still owe on your mortgage. Your lender is required to provide the total amount required to satisfy the mortgage debt as of a specified date, a figure known as the payoff amount.
“It’s always going to be a good first check to call the bank and ask for a payoff statement,” shares Richie Helali, mortgage sales leader at HomeLight. “It will help you estimate how much equity you’re going to receive if you do sell it for a particular number.”
The payoff amount includes any interest you owe until the day you plan to pay your loan in full.
Once you close on your house, your escrow company will coordinate with your lender to get an updated payout amount and use your home sale funds to pay off the debt in its entirety.
“Most people put their mortgage on auto-pay, so they don’t always take a look at their statement every month,” Helali adds. “One of the first questions I ask clients who want to sell and buy a new house is, ‘How much do you owe?’ and they might say $200,000. Once they get a payoff statement, it might be $210,000-$220,000, which affects things like their budget for a new home significantly.”
3. Estimate your net proceeds
Now that you’ve collected a home value estimate and your mortgage payoff amount, use this simple home sale proceeds formula to estimate how much you’ll walk away with:
|Credit/debit for the sale
|Market value of your home
|(-) Mortgage payoff amount
|(-) agent commission (5.8% average)
|(-) approximate closing costs (1%-3%)
|= estimated home sale proceeds
HomeLight also offers a handy Net Proceeds Calculator to help you better estimate the cost of selling your home and the net proceeds you could earn from the sale. In addition, your agent may prepare what’s called a net sheet for you, which can help you account for any local fees and costs specific to your area.
You won’t know the exact breakdown of credits and fees for the sale until you receive your estimated settlement statement at closing, but a ballpark calculation upfront can help you get a clearer vision of whether now is the right time to sell from a financial perspective.
“Your preliminary settlement statement will tell you what you can expect your net proceeds to be,” Bartlett explains. You’ll use your proceeds to pay back your lender and to pay for home sale costs. Many sellers underestimate what it costs to sell a home — which totals an average of $31,000, not including the mortgage payoff, according to one analysis by HomeLight.
If the estimated margin between your home value and selling costs is slimmer than you realized, you can determine whether to move forward or wait a few years to build up more equity before selling.
4. Find a great real estate agent
If you haven’t done so already, now would be a great time to find a top-rated real estate agent who can help you through the steps of selling a house with a mortgage.
Working with a knowledgeable agent who can sort through all the noise and provide sound advice is especially relevant in times like these when the market is shifting.
“I think most consumers are just confused,” says Darren Tackett, a top-performing HomeLight Elite real estate agent in Scottsdale, Arizona, with 26 years of experience. “The media has been extremely negative. You constantly have articles calling for the crash, so I often get the question ‘Should I sell immediately; do we need to get out?’ This isn’t a bad time to sell, but I personally feel rates are going to continue dropping and that we’re getting ready to have a nice little bounce back.”
In today’s digital world, one of the easiest and most effective ways to find an agent is through an online agent-matching service. A matching service goes a step beyond providing a master list of agents for your area and will provide you with a list of qualified candidates tailored to your selling needs and location.
This process saves you time while leading to a more effective search of the best local agents you can meet with. The top 5% of real estate agents surfaced through the HomeLight platform, for example, are known to sell houses for as much as 10% more than the average real estate agent, according to our internal data.
To narrow your list of potential agents to top performers and get easy access to an agent’s ratings and reviews for free, request your agent matches through HomeLight, and we’ll be happy to make some introductions.
Bartlett recommends interviewing at least two or three agents to find someone whose communication style and experience jives well with your needs, and who can recommend a winning marketing strategy for a home in your market and price range.
5. Prep your home for a quick, profitable sale
To sell your home for more money and close faster, take the time to give your space some basic TLC before you list. At the top of your list should be a deep clean and declutter. You should also aim to depersonalize by removing personal photographs and other distractions, and stage your home to attract the most buyers possible.
According to the 2023 Profile of Home Staging from the National Association of Realtors, 81% of buyers’ agents say that staging a home has a major impact on buyers’ ability to see themselves living there. Work with a top agent experienced in staging to ensure you’re helping prospective buyers visualize life in the space.
If you’re listing a home with a mortgage, you may be in a position where you’re selling a home while living in it. It can be a challenge to primp and perfect your house for showings while you’re still eating, sleeping, and, well, living your life there. But depersonalizing is key for a swift and profitable sale.
Check these pre-listing cleaning tasks off your list:
- Invest in deep cleaning — a simple upgrade that adds major value
- Empty out your junk drawers and pull everything out of your closet. To ensure buyers see the space as offering ample storage, rather than being stuffed to the brim, stage your closets and other storage areas to look sparse and organized.
- Sell or donate items that you don’t need or want to take with you to your next home, such as old furniture, clothing, and electronics.
- Consider renting a storage unit to house stuff you want to keep, but that isn’t good for the aesthetic you’re creating for buyers.
6. Set a price for the home
With the help of your agent, determine an appropriate asking price for your home. The price should be in line with market expectations and reflect what a real buyer is likely willing to pay.
To set the perfect price, “You’ll look at the comparables in the marketplace,” Bartlett says. He emphasizes the importance of taking into account the unique features of your home, good and bad, when setting your expectations for a strategic listing price. “What have you done to it, and how does it look?”
Setting the right price is especially important in a shifting housing market. Price too high, and the home could sit stale on the market without any offers, leading you to accept a lower price than necessary.
Tackett has had to convince quite a few of his sellers not to make this mistake as the market has shifted more in favor of buyers.
“I still get some people who really haven’t recognized that things have slowed down quite a bit and they still think things are going to sell very quickly at a crazy number,” Tackett said.
Agents across the country agree. In a recent survey of over 800 top real estate agents nationwide, HomeLight found that 65% of agents said price reductions are becoming more common. And while a small 13% of agents surveyed think it’s a buyer’s market, a cooling market and an end to pandemic-era bidding wars mean buyers have regained some footing. Properly pricing your home is now of utmost importance for ensuring a smooth home sale, according to 72% of agents.
You may already have a sense of what your home is worth, but your agent will provide a comparative market analysis (CMA) that packages together key pieces of information, including the sale price of other nearby homes and local market trends, to offer a complete overview.
Look to the CMA for guidance in the pricing process; it will take into account your home’s unique features and condition, as well as factors like inventory levels and price patterns for the area.
7. Accept an offer and open escrow
Once you accept an offer from your buyer, you’ll complete any additional steps to close, such as the home inspection and home appraisal. At this point, you may wonder if you need to get in touch and update your mortgage lender about your plans to sell and pay off your remaining mortgage balance. However, you can rest assured that your third-party escrow company will facilitate those communications.
“Technically, you don’t have to say anything to the bank when you’ve accepted an offer on your home,” confirms Helali. “You just continue making your payments, and as you get closer to the closing date, the escrow or title company that’s going to be handling your transaction will reach out to your lender and get an official payoff statement based on an actual closing date. There isn’t much maintenance that you have to do.”
8. Review your settlement statement
One of the final steps of selling a home will be to review your settlement statement, which is an itemized list of fees and credits summarizing the finances of the entire transaction.
This is where you’ll be able to see:
- The sale price of the property
- Your exact mortgage payoff amount
- Additional closing costs being subtracted from the price
- Who’s getting paid, including agents collecting commission, local governments owed, taxes and recording fees, and final charges going to the lender
- Net proceeds (which will likely be at the bottom labeled as total credits to the seller)
You won’t personally have to worry about making sure your lender gets paid. As Helali explains: “When the buyer of your home makes the purchase, the escrow company will receive all of the funds, and they’ll write a check directly to your lender.”
Review our complete guide on how to read a settlement statement for further guidance on this step of the sale.
Top questions about selling with a mortgage
Now that we’ve reviewed the general process of selling a house with a mortgage, let’s clear up some common points of confusion while addressing unique circumstances that may cause your path to look a little different.
What if your house is underwater?
Selling a house with a mortgage is extremely common. And in most cases, to satisfy the loan obligation, you simply need to put your house on the market, find a buyer, and pay off your mortgage debt when the deal closes. In the fourth quarter of 2022, the number of mortgage properties with negative equity was a mere 1.2 million homes or 2.1% of all mortgaged properties, according to property analytics company CoreLogic. This number is a 6% increase from the third quarter of 2022, but a 2% decrease year over year.
However, if you’re underwater on your mortgage, you’ll need to work out a different solution of some kind.
“Normally, someone that’s underwater is not going to sell. But if they’re in a spot where they don’t have a choice — if they can afford to pay the difference and sell the property — some people will do that,” Helali shares.
“For most folks, that’s not an option,” he adds. “At that point, they’ll need to contact the lender to request a short sale, which is when you sell for less than what you owe.”
The lender will have to agree to the short sale and approve an offer before you can move forward with the transaction.
Our guide to selling a house that’s underwater goes over these options in further detail. As a first step, we’d always recommend reaching out and starting a conversation with your lender. Depending on the situation, it may be possible to work out an arrangement or modified payment plan.
Who is responsible for the mortgage during the sale?
A borrower is required to make on-time mortgage payments until the lender is paid the outstanding balance in full. So as you prepare and price the home for sale, navigate offers and negotiations, and wrap the steps to closing, you’ll continue to make mortgage payments in the same way you always have.
“Keep making your mortgage payments until the day of closing,” Bartlett says. “You don’t want to get caught up in the selling process and become late on your mortgage because that will really hurt you when it comes time to buy another house.”
How soon can you sell a house you just bought?
You can technically sell your house at any time. A homeowner’s decision to sell abruptly often stems from an unplanned life change, such as a job loss or relocation, a death in the family, a divorce, or an injury or medical condition.
That said, real estate isn’t a get-quick-rich scheme. Although there are some markets that might see quicker appreciation, in most cases, the value rises slowly over a period of years, making it advantageous to hold on to the home for a while before selling, if possible.
Is it ever a bad idea to sell your home before it’s paid off?
The timing of when to sell a home is really a personal decision and is dependent on your circumstances and financial goals. However, keep in mind that if the value of your home won’t cover your outstanding mortgage balance and selling expenses, you’ll need to bring separate funds to the sale to cover the difference.
“It comes down to how much equity you have in your home,” Bartlett says.“It all depends on the seller’s individual situation.”
That said, Bartlett notes that in his experience, waiting at least a couple of years tends to be important for at least breaking even on your home sale.
“Because of closing costs and agent fees, it’s expensive to sell your house,” Bartlett explains. To ensure you’re coming out ahead, it can, as a general rule, be beneficial to let your home appreciate for at least a couple of years before you sell.
Another thing to keep in mind: if you sell the home before owning it for a minimum of two years, you’ll likely have to pay capital gains tax if you make money from the sale.
- If you’re selling less than a year after buying, you’ll have to pay a short-term capital gains tax on your gain from the sale, which is taxed as ordinary income according to your tax bracket.
- If you’re selling more than a year after buying, but less than two years, your gain will be taxed at the lower long-term rate — either 0%, 15%, or 20%, based on your capital gains tax bracket.
If you’ve owned and lived in the home for two of the past five years — and haven’t excluded gain from the sale of a different main residence in the past two years — the IRS allows you to exclude up to $250,000 of gain if single or married and filing separately, or up to $500,000 if married and filing jointly. We always recommend reaching out to a tax advisor to go over the details of your individual transaction.
Can you have two mortgages at once?
Whether you can take on two mortgages at once will largely depend on a criteria lenders consider called your debt-to-income ratio (DTI). DTI is a measure of your gross monthly debt payment to your gross monthly income. Lenders typically like to see a DTI of 36% or lower, but some allow up to 45%.
Therefore, you would most likely need your combined mortgage payments plus all additional minimum debt payments (including student loans, car payments, and credit card debt) to equal no higher than 45% of what you’re bringing in every month in order to qualify for two mortgages.
“If you’re in a situation where you have to buy before selling, the bank is going to make sure that you qualify with both loans considered,” explains Helali. “But many folks spend 30%-40% of their income per month on housing payments, so they typically won’t be able to qualify for two mortgages.”
“Most people have to sell their house before they can qualify for another mortgage,” Bartlett echoes. “In that case, if you want to put in an offer on another home while you’re selling, you’ll often have to make your offer contingent on the successful closing of your current home.”
If you do qualify for two mortgages from a financial standpoint, then it’s a matter of whether you feel comfortable juggling both payments and for how long.
John Werner, owner of Mortgage and Credit Pro in Arizona, says he has seen an uptick in the number of borrowers struggling to keep up with multiple mortgages as short-term interest rates have increased.
“With the prime lending rate jumping up so quickly, some of these people might have done a remodel and had a $1,000 payment, and now their payments are $1,500/$1,600 a month; so I have been getting calls from people wanting to combine all of that together,” Werner explains. “The problem is they don’t have enough equity to combine all together.”
How can I sell a home with a mortgage and buy a new one?
Unless you have a lot of cash on hand, it might be tough to come up with the money for a down payment while the equity is still tied up in your current home.
Your options here may be to:
- Make a contingent offer, which includes a condition that your contract is dependent on your current home selling (protects you from carrying two mortgages, but weakens your offer)
- Purchase the new home before your old home sells if you can qualify for two mortgages (the difficulty of this route is noted above)
- Consider a bridge loan, which provides financing to buy a new home that you pay back when you sell your old one. But keep in mind these loans can be hard to qualify for and come with interest and fees.
- Seek an offer from a cash buyer to ensure the speedy sale of your existing residence, and put the proceeds toward the next home
- “You can unlock equity in your home using a Buy Before You Sell Program,” Bartlett says. Look into a home trade-in or Buy Before You Sell program, which can enable you to unlock equity from your home to put toward your next residence
“Some companies have come up with a neat solution to get rid of your old home while you’re in the process of buying a new one,” shares Helali. “That’s one of the things that we do at HomeLight called the ‘Buy Before You Sell’ program.”
If you’re in the states of California, Texas, Florida, or Colorado, consider exploring HomeLight’s Buy Before You Sell program. Examples of other “buy before you sell” or “trade-in” services include: Knock Home Swap, Orchard, and Ribbon.
The greatest challenge for many people considering selling and buying right now is the substantial interest rate increase they’d face by switching mortgages.
“If you’re sitting on a mortgage, and you’re at like a 3% rate, is it really worth it to buy into a 6% interest rate environment?” Tackett says. “I think that’s part of what’s keeping our inventory in check. What you end up with is a lot of people kind of frozen in place. Unless rates drop back below 5%, a lot of those people are just going to decide to stay put.”
For those who are biting the bullet, many are having to sacrifice their home sale’s profit to afford the transition, Werner says.
“Everyone that I’m dealing with that is selling and buying, they are rolling all of their equity into the new house,” he explains. “They’re trying to keep things as level as they had before.”
When the stars align, Bartlett advises his clients to consider the benefits of selling their current home before putting in an offer on a new home.
“My advice is to know exactly what you’re walking away with before you start your next venture,” he says.
Of course, that means you’ll need to find transitional housing, and deal with the hassle of moving twice. That can be a tricky dance, but there’s a lot of value in knowing exactly what you’ll net on your home sale — and, hopefully, being well-positioned to put in a winning offer on your next home.
Can you make money on a house you still owe on?
Yes, you can absolutely make a profit on a house you still owe money on. When you sell a house with a mortgage, any profits left over after you cover your outstanding mortgage balance and selling expenses are yours to keep.
Selling with a mortgage: It happens all the time!
Mortgages are pretty awesome financial tools that allow people without hundreds of thousands of dollars in cash reserves (aka, most of us!) to achieve their dream of homeownership. Some homeowners will stay in their homes long enough that the entire mortgage is paid off by the time they sell. That’s a great feeling! However, it’s not required that you stay in your home until that happens.
Typically, sellers use their proceeds to pay off their remaining mortgage balance and closing costs, then pocket the remaining funds. This option is possible because real estate generally gains value over time, so a house is usually going to be worth more when you sell it than when you purchased it.
That’s the beauty of owning a home!
Writer Max Efrein contributed to this story.
Header Image Source: (Ralph (Ravi) Kayden / Unsplash)
- "Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again?," Forbes Advisor (May 2023)
- "Top Agent Insights for Spring 2023," HomeLight (March 2023)
- "Homeowner Equity Insights – Q4 2022." Corelogic (March 2023)
- "Profile of Home Staging," National Association of Realtors (2023)
- "Highlights From the Profile of Home Buyers and Sellers," National Association of Realtors (2022)