Can You Sell a House With a Mortgage Still on It?

There are several reasons to sell a home, from having more space or downsizing to relocating for a job. If you have an existing mortgage, you may wonder how the process works or if it’s even possible. Fortunately, selling a house with a mortgage is very common, and knowing the steps can make for a smoother experience.

How to Sell a House With a Mortgage

Selling a house with a mortgage is possible by following these steps!

Step 1. Get a Payoff Quote

Your payoff amount is how much you have to pay to satisfy the terms of your mortgage loan and completely pay off your debt. You can contact your lender to get a quote. It will include your mortgage balance, any applicable fees or mortgage insurance balances, and the date the quote expires. If it expires, you’ll have to get a new one.

Step 2. Determine Your Home’s Equity

Home equity is the difference between what you owe on a mortgage and the home’s market value. In other words, it’s essentially what you own in a home. You can gain equity in two different ways.

1. Earned equity is gained from paying upfront with a down payment and making monthly mortgage payments.
2. Home investment equity is gained when there’s an increase in market value. You don’t necessarily have to do anything to earn this equity.

Step 3. Market and Sell Your Home

You can put your house on the market after finding out how much you owe. The asking price will need to cover your loan balance. A skilled real estate agent will know the local market and can help you price your home competitively.

Step 4. Repay Your Mortgage Lender

Once the sale of the house has gone through, you’ll need to pay your mortgage lender. The mortgage on a home occupies the first lien position, meaning it must be paid off first.

Step 5. Pay Off Additional Liens and Loans

Next, any other liens and loans will be paid off. Liens stay with the home, not the person. This means the buyer may be unable to close on the home if there are outstanding liens on the property.

You may have a:

• tax lien – a legal claim the government places on assets when the owner is past due on taxes.
• mechanic’s lien – a legal claim that guarantees payment to builders, contractors, or construction firms that build or repair structures. This can lead to a lawsuit if the homeowner doesn’t pay.
• home equity loan – a second mortgage that allows homeowners to borrow money using the equity of their home as collateral.
• home equity line of credit (HELOC) – a second mortgage that gives homeowners an open credit to borrow repeatedly against their home equity.

Step 6. Cover Transaction Fees and Closing Costs

Then, transaction fees and closing costs are deducted from the sale proceeds. While the buyer usually pays most of the closing costs, you can expect to pay for the title insurance and real estate agent’s commission.

Step 7. Keep Remaining Funds

Once everything is paid off, the remaining home sale proceeds can go directly into your pocket! If you’re buying a new home, this amount could go toward a down payment. Making a down payment of 20% or more helps you build home equity and avoid private mortgage insurance (PMI), an added cost homebuyers must pay.

Can You Sell a House With Negative Equity?

If you have negative equity, you owe more on your home than it’s worth. This is known as being underwater on your home. A short sale may be your only option, but it’s often taken as a last resort as it can negatively impact one’s credit.

In a short sale, the homeowner, with the mortgage lender’s approval, sells the property for less than the amount owed on it. The homeowner enters into this process voluntarily, which isn’t the case with a foreclosure. Proceeds go directly to the lender, and they can either forgive the remaining balance or get a deficiency judgement, which requires the borrower pay the leftover amount.

Speak With a Professional Realtor

Make the process of buying or selling your home as stress-free as possible! At The Massey Team at Berkshire Hathaway HomeServices Select Properties, our expert Realtors have you covered. Understanding your personal goals and needs is at the heart of everything we do.

Contact us today at (618) 791-5024 or (618) 791-9298 to get started!