Can You Sell a Home With a Mortgage? 

It's a funny feeling, isn't it? Putting your house up for sale when you don't fully own it yet. But the truth is, you're not alone. Selling a home with a mortgage is a common occurrence, happening every day! Whether you're relocating for work, upgrading to a larger home, or downsizing, it's important to know that selling your home before your mortgage term is up is very doable.

In 2023, 80% of homebuyers financed their home purchases with a mortgage, according to the National Association of Realtors®. For those who sold in 2023, the median length of time spent in the home was only 10 years. Considering that the most common mortgage loan in the U.S. is a 30-year fixed-rate mortgage, it's safe to say that quite a few people sold their homes before their mortgage terms were up.

Andres Diaz, a seasoned Realtor in Tampa, Florida, estimates that 70% of the sellers he works with are paying off their mortgage with the proceeds from the sale of their home.

To sell a house with a mortgage, most homeowners use the money from the sale of their home to pay off their remaining mortgage balance. After subtracting the mortgage payoff amount and selling fees, such as real estate agent commissions and closing costs, the remaining money is yours to keep.

Here we’ll cover everything you need to know about selling your home with a mortgage. Let's dive in.

Steps to selling a house with a mortgage

To sell your home with a mortgage, follow these step-by-step instructions, from finding out how much you owe to paying off the loan with the proceeds of your sale.

1. Determine your mortgage payoff amount

While it might seem as simple as checking your last statement, determining the exact amount you need to pay your lender once your sale is finalized requires an official loan payoff statement. Your last statement will not show you the interest, fees, or penalties your lender might require to officially close your loan. Most lenders allow you to request this online, while some require a phone request. Before making the request, you'll need to know the approximate closing date so your lender can calculate the exact amount of interest you owe. If you're unsure, add a few days as a buffer to avoid underpaying.

"You will want to request a payoff ahead of time. If you do it too late, some of the smaller banks can take weeks, which can delay a sale," shares Santino Muscardin, a California Realtor with over 14 years of experience.

In addition to the remaining principal balance and accrued interest, your payoff statement may include other costs you might not expect, such as:

• Late fees incurred but not paid over the course of your loan

• Mortgage insurance payments through the end of your payoff date, if applicable

• A payoff demand letter fee, usually between $25 and $30, if charged at all

• A prepayment penalty, if the terms of your mortgage specifically state you will pay a fee for paying off your mortgage before the term is over (though these days, this is uncommon)

2. Estimate your home’s market value

Now that you have your mortgage payoff amount, it's a good idea to estimate your home's value to get a clearer picture of your expected sale proceeds. That way, you can start to see how much money you'll receive from the sale, how much will go towards paying off your mortgage and other fees, and ultimately, how much profit you'll take home.

To determine your home's fair market value — the price a buyer would be willing to pay for your home in an open market — you can work with a real estate agent who will consider comparable sales (sometimes called comps), the condition of your home, and local market conditions in their calculations.

"We try to find at least 5 homes within a quarter of a mile, and then compare by looking at photos and videos to see how the seller's home compares," shares Diaz.

In addition to comps, your home's value depends on its location, age, and current market conditions. A skilled real estate agent will have a pulse on how quickly homes in your area are selling and for how much. If homes in your area are selling quickly and at prices above asking, your agent should help you price your home appropriately based on this information. Conversely, if homes in your area are taking longer to sell and prices are coming down, they might suggest pricing more competitively.

Once you determine your home's estimated value, you can use a net proceeds calculator or old-fashioned math to determine your final proceeds after paying off your mortgage, closing costs, any outstanding property taxes, and any credits for home repairs you might be offering.

Here is an example calculation for a home with a sale price of $600,000:

Your closing costs will vary depending on factors like the rates charged by your title and escrow company, whether your state charges transfer taxes, if you owe prorated property taxes, or if you are offering any closing costs credits to the buyer. 

3. Price your home and list for sale 

With your home's estimated fair market value, mortgage payoff balance, and approximate closing costs in hand, you are well-prepared to price your home for sale. Your real estate agent will help you set a competitive price that attracts potential buyers while giving you the best shot at receiving the proceeds you desire.

When pricing your home, it's essential to consider your local market conditions. In a strong seller's market, characterized by high demand and low inventory, your agent may recommend setting a slightly higher price than in a buyer's market, where the supply of homes for sale outpaces the number of interested buyers. For homes sold in 2023, the median final sales price was 100% of the list price, indicating that sellers rarely had to reduce their sale price to compete in the market.

Another important consideration is your agent's marketing efforts. Your real estate agent will likely give you recommendations on staging, photography, and overall preparation to make your home stand out before you list. They will then create the listing on the Multiple Listing Service (MLS) and hold open houses to connect with potential buyers.

TIP: To find the right real estate agent for your unique situation, consider using Redy's online platform. Create your profile and local real estate agents will send you proposals that include their experience, services, fees, and qualifications—not to mention a one-of-a-kind cash reward for the chance to list your home. This way, you can connect with potential agents who will compete for your listing and choose the one who best fits your needs.

4. Satisfy the mortgage payoff and pay closing costs

The closing table is in sight! After getting through negotiating the purchase contract, inspections, and the appraisal, you'll be ready to sign those final documents and close the sale.

Before closing, the escrow and title company will provide a settlement statement that outlines every fee associated with the transaction line by line. "You're going to spend between 7% and 8% in closing costs when selling your home," estimates Sean Siegel, an experienced Realtor in Mystic, Connecticut.

Here are the closing costs you may pay as a seller, excluding your mortgage payoff:

• Listing agent and buyer’s agent commissions (unless negotiated otherwise)

• Owner's title insurance

• Title and escrow fees

• Transfer taxes

• Prorated property taxes

• Recording fees

• Home repair credits to the buyer (when applicable) 

5. Receive any remaining proceeds

Once you close the sale, the escrow company handling the transaction will start cutting the checks. They will send the payoff amount to your mortgage company, pay out commissions to the agents, collect closing costs, and send you your final proceeds. The escrow company will either issue a check or send you a wire, and you will be free to use the money however you wish! 

FAQs about selling a house with a mortgage

Here are answers to a few additional questions you may have about selling a house with a mortgage.

What happens if my home sells for less than my mortgage balance?

If your home sells for less than your mortgage balance, it's called a short sale. In this case, you'll need to work with your lender to get approval for the sale. Your lender may agree to forgive the difference between the sale price and your mortgage balance, but in some cases, you may still be responsible for paying the deficiency. It's important to communicate with your lender and explore all your options before proceeding with a short sale.

"The first thing we are going to do is find out what they can sell the house for and how far we are away from what they owe — and if they can come up with the difference. Then we will approach their bank and come up with a plan for the short sale," shares Muscardin.

Do I need to notify my lender that I'm selling my home?

Yes, it's essential to notify your lender as soon as you decide to sell your home. Your lender will provide you with a mortgage payoff statement, which outlines the total amount you owe on your mortgage, including any fees or prepayment penalties. This information is crucial for determining your net proceeds from the sale and ensuring a smooth closing process.

Can you transfer your mortgage to someone else? 

In certain circumstances, a buyer can take over a seller’s mortgage and keep the same interest rate. Unfortunately, this scenario is uncommon and most mortgages do not allow for this kind of transfer. Typically only government-backed loans, meaning FHA, VA, or USDA loans, will allow this and these only make up 25% of purchase loans and 20% of refinances. 

Most mortgages are due upon the sale of the home, but some loans are what is called “assumable,” meaning they can be transferred to the new buyer upon the sale of the home. The new buyer must still qualify for the loan, and the current loan amount might not cover the amount the new buyer needs to purchase the home. 

Can you buy a home before you sell your previous home with a mortgage? 

If you are using the proceeds from your home sale to purchase your next home, you will likely need to wait until your home sells before you can close on your new one. With a home sale contingency, you can stipulate that your new home purchase is contingent on the sale of your previous home. 

There are some companies that offer what is called a bridge loan, which provides temporary financing for your new home until your old one sells. These loans can come with significant costs, so do your research before making a decision. 

Can I use the proceeds from my home sale to pay off other debts?

Yes, after paying off your mortgage balance and covering any closing costs and fees associated with the sale, you can use any remaining proceeds to pay off other debts, such as credit card balances, student loans, or personal loans. This can be a good strategy for improving your overall financial situation and reducing your monthly debt payments. However, it's important to prioritize your debts and consider consulting with a financial advisor to develop a plan that works best for your specific circumstances.

Ready to sell your home — mortgage and all?

Selling a home with a mortgage is a common and achievable process. By following these key steps, you can ensure a smooth and successful sale:

1. Request your mortgage payoff amount from your lender to estimate your net proceeds. 

2. Partner with a trustworthy and experienced real estate agent who can guide you through the process and help you maximize your home's value.

3. Work with your agent to prepare, price, and list your home to attract potential buyers and secure the best possible offer.

4. Maintain clear communication with your agent, lender, title company, and escrow company to ensure all necessary documents and funds are transferred efficiently.

If you're ready to embark on the journey of selling your home, Redy simplifies the process of finding the right real estate agent. 

With Redy, top agents in your area compete for your listing, allowing you to easily compare proposals, qualifications, and services. As a bonus, Redy is the only platform where agents will offer you an upfront cash reward for the privilege of listing your home. This streamlined approach saves you time, money, and effort in finding the perfect agent to meet your unique needs. 

Interested? Create your home profile today to get started. 

Madeline Sheen is a passionate writer and editor with experience in real estate, personal finance, and mortgage content. She’s worked in the mortgage industry since 2019 and holds a BA in Communications from California State University, Monterey Bay.