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Can You Sell a House With a Mortgage

Sell a House With a Mortgage

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Catherine Hiles
Updated October 2, 2022
5 Min Read

If you’re considering selling your home and buying another one, you may be wondering what the repercussions will be of selling a home that still has a mortgage loan on it. Can you sell a house with a mortgage, or do you need to wait until you’ve paid it off? 

The short answer is yes, you can sell a house with a mortgage, but there are certain things you may need to consider first. Let’s take a deeper look into selling a home with a mortgage so you can figure out exactly which steps to take to be successful.

Can you sell a house with a mortgage?  

In most cases, you will be able to sell a house with a mortgage. The most common mortgage loan term in the U.S. is 30 years, and many people will need to sell their house before their mortgage term is up. Luckily, it can be fairly easy to sell a home with a mortgage, though there are situations where it can be harder. For example, if you purchased your home during a hot housing market and are trying to sell it when demand for new homes is low, you may find that you owe more on your mortgage than you can sell it for. In this situation, you are considered to be “underwater” on your loan, and you would most likely need to bring a check to closing rather than walking away from closing with a profit.

Selling a home with a mortgage can be quite simple. Let’s take a look at the process.

How to sell a home with a mortgage

If you initially took out a 30-year mortgage on your home and are looking to sell after 15 years, you will likely have some equity in your home. Equity is the difference between the amount of money you owe on your home and the amount it is worth. In a less volatile market, you may have a decent amount of equity in your home after a decade or so; but if the market has declined since you purchased, you may discover that your home is worth less than you owe on it. But provided that you owe less on your mortgage than your home is worth, the selling process is fairly straightforward.

Whether you have paid off your home or you still have a mortgage, most of the sale process is the same. You’ll contact a real estate agent for an appraisal and list your home for an amount that seems reasonable given the market and the amount of money you have put into the home in the way of upgrades and maintenance, such as a new roof or an updated kitchen. 

Once you get an offer on your home, the seller will ask for an inspection and appraisal, and you may be required to fix any issues the buyer finds as part of the contract. But if all goes well, you’ll sign the papers at closing and transfer ownership of the house to the buyers.

Once you close on the home, the proceeds from the sale will first go toward paying off your outstanding mortgage amount and any closing costs, and then you will receive the rest as a profit. You can then use that money to put toward a down payment on a new home, save it for another large expense, or invest it for your future. The money is yours to do with whatever you please at that point.

However, if you owe money on your mortgage beyond the home’s current value, you may need to do a short sale instead.

How to sell a house in a short sale

A short sale happens when the homeowner owes more on the home than it is worth. Let’s say you paid $300,000 for your home 10 years ago and you have a 30-year mortgage. You may have paid off a decent chunk of your mortgage over the last decade, but if your home’s value has decreased to $200,000 you may still owe more on your mortgage than you can sell your home for. In that case, you may be able to work with your bank to arrange what’s called a short sale.

A short sale is where your lender agrees to accept less than you owe on the mortgage in order to pay off the loan. Generally, this isn’t a great deal for lenders as they could stand to lose money, but in some cases it’s necessary and the lender will agree to sell the home this way. However, short sales can make it harder for you to purchase a home in the future as they present you as a risk to lenders, and they have a detrimental effect on your credit score.

When you choose a short sale, the lender is typically more involved in the sale than they would be with a traditional sale. Short sales can take longer than traditional sales and generally require a lot more paperwork, which can be off-putting for both buyers and sellers. However, a seller may be able to get a better deal on a home by purchasing through a short sale. A short sale also tends to hurt the buyer’s credit less than a foreclosure would, so if you truly need to sell and can’t wait until the market turns around this can be a good option.

What happens to equity when you sell your house?

In the best-case scenario, you’ll have equity in your home when it comes time to sell. If your home’s sale price allows you to pay off the mortgage and have some of the equity left over, that money will go to you to do with as you please.

Homeowners who are selling their home in order to buy a new one may use their equity to make a down payment on their new home, which means their new mortgage will be for a smaller amount than the sale price. Those who are downsizing at retirement may decide to put the equity they receive from the sale of their home toward their retirement living expenses, which can supplement any income they receive from Social Security, their work retirement accounts, and any investments they may have.

Buying and selling a house at the same time

Buying and selling a house at the same time can be a stressful situation to be in, especially if you’re trying to handle both transactions on your own. Many homeowners choose to enlist the services of a real estate agent to help manage the sale of their old home, as well as to help them find a new home to purchase.

Unfortunately, if you have an offer accepted on a new home before selling your old one, you may find yourself paying for two mortgages at the same time, as well as any upkeep costs for both properties. On the flip side, if you sell your home and can’t find a new one to buy, you may end up scrambling and either having to find a short-term rental or settling on a property that doesn’t check all of your boxes. Buying and selling a home at the same time takes a lot of planning to get the timing right, as well as a lot of luck that each step will happen in the correct order. A real estate agent can help you get everything in order.

If your home has a mortgage, you can still sell it as long as you can find a buyer who will pay at least the amount you owe on your mortgage in order to pay it off. And if you can get an offer above what you owe, you may end up making a profit from the sale.