A Guide to Selling a House with a Mortgage

Maybe it’s a new job in a new city. Maybe your family has grown beyond what your house can really hold. Maybe a new locale seems nice. Whatever the reason, it’s time to pack the boxes, sell the house, and move. But what do you do if you still have a mortgage on your home? You’re ready to sell, but you’re not sure where to start since you still owe money on your current home.

This scenario is very common. Most homeowners move after 14 years – well before the average 30-year mortgage is paid off. In fact, 63% of homeowners are still paying off their mortgage. So, if you’re in this situation, what happens next? What can you do? 

While it might feel like having a mortgage is a big obstacle, we’ll give you a complete guide to selling a house with a mortgage to help you get started with your big move. 

Can You Sell a House with a Mortgage?

So can you sell your house if you have a mortgage? The short answer is, “yes, absolutely!” You need to do a few things to make it happen, but it’s possible if you have the right equity in place. It’s fairly common for people to sell their houses before they have completely paid off their mortgage. 

So how does it work? Essentially, you are still required to pay off the mortgage in full when you sell the house, but you pay it off by selling the house for something that covers the remaining mortgage balance. You get the cash from selling to pay off your mortgage and closing costs, and then you keep the rest. The key here is home equity.

Home equity is the difference between the value of your home and how much you owe on it. For example, if your house is worth $300,000 and you owe $100,000, your home equity is $200,000.

We’ll talk about the steps to go about selling your home with a mortgage, but you might have a more pressing question first.

What if I Don’t Have Enough Equity to Pay Off the Mortgage?

What if you don’t have enough equity to pay off the mortgage? This scenario is called negative equity. Negative equity occurs when your home is worth less than your remaining mortgage balance. Let’s say you bought a house for $600,000, but your property value has dropped. Now, your home is only worth $400,000, and you still owe $500,000 on your mortgage. You have a negative equity of $100,000. To sell your house, you’d need to repay your $500,000 mortgage at the sale, even though you’re only selling your home for $400,000. That’s where the problem arises. What are your options? You have two choices: bring the money in yourself or try to sell on short sale. A short sale will damage your credit because the bank won’t be repaid in full.

How to Sell a Home with a Mortgage

If you have enough equity to make your home sale happen, what do you do? These are the steps to take when you sell your home with an outstanding mortgage.

Get a payoff statement

Before you begin, you need to know your remaining mortgage balance. Contact your lender for a payoff statement that will let you know how much you owe, how to pay your loan in full, and any details about pesky fees incurred for paying off your mortgage too early.

Determine the right time to sell

Be aware of the market you’re entering when you sell. If more people are buying than selling, you can set a higher listing price. But if lots of homes are on the market, you might find it harder to get an offer that works with your mortgage.

Estimate the home value and list the property

You can estimate your home value in many ways, but the simplest is to check prices for comparable homes in your area. A real estate agent or realtor can also give you valuable insight into your home’s potential value.

With your home’s valuation in mind, you’ll need to choose an asking price. The ideal asking price not only covers your remaining mortgage balance, but reels in enough interested parties to secure multiple offers. The more offers you have, the bigger your safety net in case your buyer backs out.

Find the right real estate agent for you

Need a realtor? We’ve got you covered. With Redy, you can get paid upfront to match with the best agent for you. Start by creating a Redy account and provide a few essential details about your property, such as asking price and current condition. Then sit back and relax as top local real estate agents bid for the opportunity to earn your business! Each bid includes an upfront payment, commission rate, marketing plan for your property, and more. Compare your bid to ensure you’re getting what you want, pick the winner, and just like that, you’ve got a top-of-the-line real estate agent ready to sell your home – plus some extra money in your pocket. A great agent can help you create your property listing, guide you through the selling process, and explain the current housing market. Read more about how to find a real estate agent here.

Sell and cover closing costs

Once you have an offer you like, it’s time to actually sell your house. You’ll need to arrange the sale and cover the selling costs, such as: 

• Owner’s title policy. The seller often pays for this as a show of good faith, so you may be responsible for this payment.

• Escrow account. This account holds money to protect both the buyer and seller until closing, and you’ll usually split the costs.

• Prorated taxes. You’ll pay real estate taxes for the portion of the month you lived in the home before your sale.

You’ll also be responsible for the agent’s commission, which is often around 6% of the final sale price. 

Close the sale and pay off the remaining mortgage

You made it! Once your house sale closes, you can use the sale money to pay off the remaining mortgage and get ready for your next adventure.

The Bottom Line

Overall, selling a home with a mortgage is pretty common. The key to doing it well is ensuring your equity is in line and finding the right agent to represent you. Ready to get started? Sign up for Redy to match with your perfect agent and kickstart the homeselling process. Get started today!

To learn more about selling your home, visit our Home Seller Resources >