Your Guide to Selling a House with a Mortgage


|10 min read

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Whether you’re upgrading, downsizing, or relocating, selling a house with a mortgage requires a little more time and patience. But working with experienced professionals will help make the process as smooth as possible. Here’s your guide to selling a house with a mortgage.

Yes, you can sell a house with a mortgage!

Just because a house has an outstanding mortgage on it, doesn’t mean it can’t be sold. In fact, most properties in the US are sold with an outstanding balance on the mortgage. Most homeowners owe money on a home loan at the time they need to move and sell their property.

You can sell a house with a mortgage by using the proceeds to pay off your mortgage during the closing process. If a property has proven to be a good investment, the homeowner’s equity will have increased during their ownership. Plus they will have paid off a portion of their principal during the life of the loan. The more principal the owner paid off, and the more the market appreciated, the more equity the owner will have in their assets. Ideally, there should be enough equity from the sale of a property to pay off the loan’s principal balance. And for the homeowner to have a remaining balance for the down payment of their next property.

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However, if the market hasn’t appreciated or has dropped, the property’s equity might not be enough to pay off the loan balance. This can make selling a home with a mortgage more complicated. In these circumstances, a short sale might be an owner’s best option.

Can you sell a house with mortgage debt that’s more than the equity?

Unfortunately, the market isn’t always favorable. Sometimes, life circumstances result in property owners no longer being able to afford their mortgage payments during economic downturns. If the market is down, a home’s market value can dip below its mortgage principal. When this happens, owners may need to work with their mortgage lender to arrange a short sale. While a short sale is not ideal, from a financial perspective they can be helpful for owners with negative equity.

Gather your mortgage documentation.

Before you can sell your house with a mortgage, you need to understand the specific details of your loan. Gather up all the documents related to your mortgage, including recent statements and payment history. If you have two mortgages, you’ll need to gather double the documentation.

Additionally, you’ll also want to get a copy of the ownership deed from your lender. This will help you understand any restrictions that may be in place, such as whether you are able to have a tenant live in the home while it is on the market.

house with mortgage

Find out if your mortgage has a prepayment penalty.

If you’re toying with the idea of selling, but haven’t committed, start by understanding your costs. Ultimately, you want to know if you have enough equity to cover your mortgage, selling costs, and still have remaining funds for another purchase.

A prepayment penalty is a fee a lender charges if you pay off your mortgage before the agreed-upon term. While these penalties are becoming less common, they’re still something that you need to be aware of when considering paying off your mortgage early.

How can you find out if your mortgage has a prepayment fee?

Here are a few steps you can follow:

  1. Review your mortgage documents: The first place to look is your mortgage documents, including the promissory note and the mortgage agreement. These documents should specify any prepayment costs that may apply to your mortgage.
  2. Contact your lender: If you’re unsure whether your mortgage has a prepayment penalty, or if you can’t find the information in your mortgage documents, you can contact your mortgage company directly to ask.
  3. Check with a mortgage broker: If you obtained your mortgage through a mortgage broker, they might be able to help by either contacting your lender for you or reviewing your documentation.

While a prepayment penalty might be significant, it’s usually not a deal breaker. For a complete breakdown of exactly how much it will cost to pay off your remaining loan balance, you’ll want to get in contact with your mortgage lender and request a mortgage payoff statement.

Everything you need to know about your payoff quote.

At any point during the life of your loan, you might want to know how much your mortgage balance is and how much money you’ll need to pay to discharge the loan, but it’s even more important to know this amount prior to a real estate transaction. The most accurate mortgage payoff amount will be provided in an official payoff quote.

Get a payoff amount from your mortgage lender.

Getting a payoff quote is simple. The best way to get this document is by contacting your lender directly. If you’re selling your home with an outstanding mortgage, the fastest way to get a payoff quote is to contact the lender yourself.

Payoff quotes include more than just your loan balance.

Once you contact your mortgage lender, they’ll review your loan information and provide an official payoff quote. This statement will give you critical information that will help you decide if you want to sell and how much you’ll owe upon the sale of your property.

• The outstanding mortgage balance

• Any prepayment penalties

• An estimated timeline for paying off the balance

Did you have to take out private mortgage insurance when you purchased the property? If so, and if there’s any remaining mortgage insurance that is due, this amount will also be included in your payoff figure.

Your home’s payoff quote will have an expiration day. Take note of this date because if the document expires before the closing date, you’ll have to contact your lender for a new payoff letter.

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Determine how much equity you have.

Once you have a payoff statement, you have half of the recipe required to know how much equity you have in your property.

What is home equity?

Home equity is the difference between what your home is worth and how much you owe on it.

Equity can be acquired or built up through earned equity, also referred to as equity gained through regular payments and decreasing your principal balance, or through invested equity, which the equity gained through market appreciation.

To determine your total home equity, subtract your payoff amount from the current value of your home. For example, if your home is worth $400,000 and the payoff quote comes in at $320,000 then you have $80,000 of equity in your property.

Understanding how much equity you have in your home will help you determine whether selling makes financial sense for you and will give you a good idea of how much money you might walk away with in a sale.

There’s more than one way to find out your home’s market value.

The market value of a property is challenging to nail down without actually listing a property for sale – especially when economic conditions are as volatile as they are today. Here are the most common ways of determining market value:

  1. An online resource. Websites like Zillow or Redfin give users an estimate of a property’s value. Never rely solely on these figures, but they can be a good rough guide for how much a property would sell for in today’s market.
  2. Get an appraisal. An appraisal is a formal opinion of home value conducted by a professional appraiser. Appraisals are typically used when applying for a loan and/or selling a home. Professional appraisers take into account the features, upgrades, condition, and location of your home to come up with their estimated market value. However, a professional appraisal will incur a fee.
  3. Work with an experienced real estate agent. A real estate agent that works in your local market might actually be the best resource for how much your property will sell for. They work with buyers and sellers every day and have the most up-to-date knowledge of what’s happening in the market.
    If you’re not connected with an agent, FastExpert can help you find and read reviews of agents in your area so you can find a professional you trust.

Once you know your fair listing price, you can combine your knowledge of equity and your existing mortgage balance to get a better sense of how much money you’ll make when it comes time to sell.

>>MORE: How Do Real Estate Agents Get Paid?

Don’t forget about closing costs.

Unfortunately, selling a property isn’t cheap. Closing costs can add up quickly. Closing costs can include fees for title insurance, home inspections, appraisals, an escrow fee, and various administrative costs.

Be sure to factor in how much you need to cover closing costs when you’re budgeting for the sale of your home and estimating net proceeds. Different states have different requirements, so make sure to investigate this beforehand to get a better idea of what you’ll be expected to pay.

Knowing your closing costs ahead of time can help you be prepared for the financial aspects of selling and will ensure that everything runs smoothly during the process.

selling a nice house with a mortgage

Do you need to pay real estate taxes?

Real estate taxes are handled at closing. Property taxes are prorated, so each party will either pay or receive a prorated portion of the tax bill that corresponds with their ownership.

But did you know you could end up paying capital gains tax when you sell your home?

Capital gains tax in real estate.

It’s great when your home appreciates in value. But if the market’s increased significantly, you might owe capital gains tax on your proceeds. If you’re a single seller who’s made more than $250,000, or a married couple (who files taxes jointly) who’ve made more than $500,000 in profit, you will likely face a capital gains tax bill. Talk to your accountant to find out if you might need to pay capital gains. Also ask how much you can expect to pay when you sell.

List your property with an experienced local real estate agent who knows your market.

Once you’ve made the decision to sell your home, and you are aware of the proceeds, how much you need to pay off the remaining amount of debt, and how much you can expect to profit from the sale, it’s time to list your property for sale. If you didn’t connect with a real estate agent when you were assessing your property’s value, now is the time.

FastExpert can help you find the right agent to sell your home. With the help of your local expert, you’ll be able to get your home listed and start the process of making a sale. Use FastExpert’s search to sort through real estate agents in your local area, read real client reviews, and find the right professional for your real estate transaction. A knowledgeable agent will help you set a fair listing price and sell your home quickly. Find out more about how to price a house to sell quickly here.

Keep in mind working with an agent will incur another cost, an agent commission. Agent commissions are relevant to specific markets, real estate brokerages, and negotiations between parties. However, when you sell a property, expect to pay between 5-6% of the home’s sale price.

Sell and pay off your existing mortgage.

Once you accept an offer, whether it’s an all cash offer or contingent offer, an escrow account will be opened. The money for the buyer’s down payment will be held in this account until closing. These funds will be released when the sale closes. At the closing table, all costs will be paid using the funds in the escrow account. These costs include your existing mortgage, property taxes, escrow fees, commissions, etc.

A closing cost estimator can give a good indication of how much closing costs need to be paid. However, each state and jurisdiction has its own costs. Work with your title company and real estate agent to get an exact estimate of your costs to sell your home.

Buying your next home.

Many sellers are navigating two transactions at the same time. You’re not alone if you trying to sell your home while purchasing a new home at the same time. Sometimes, this requires owning two properties while the previous home sells. However, most sellers can’t qualify for two mortgages at once. They need their old mortgage to be fully paid before getting a new mortgage. In these situations, a bridge loan can cover the finance and down payment of the new property for a short period. However, a bridge loan lender will charge more interest. For more information on bridge loans, talk to a mortgage broker to see if they will work with your financial goals.

Here’s a recap.

Selling a house with a mortgage requires some extra steps, especially if you’re simultaneously navigating a property purchase. Before listing your house, make sure you’re aware of all the associated costs required to sell so you can estimate your net proceeds.

An experienced real estate agent will be your teammate and help you navigate the sale process. Find and connect with a trusted agent with FastExpert.

Kelsey Heath

Kelsey Heath is a real estate content specialist with an extensive background in residential, industrial, and commercial property. She has been involved in the industry for a decade as a professional and personal investor, gaining a deep understanding of the market and trends. With a passion for written communication, Kelsey loves helping people understand the sometimes-complicated concepts behind real estate and is now a sought-out guest and ghostwriter.

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