Can You Sell a House with a Mortgage On It?

October 4th, 2023  / Author: Cesar Gomez

When it comes to real estate transactions, one common question that often perplexes homeowners is, "Can you sell a house with a mortgage on it?" The answer is a resounding yes! In fact, selling a property with an existing mortgage is a fairly common practice in the real estate market. However, it's essential to understand the nuances and implications of doing so to make an informed decision.

Whether you're a homeowner looking to sell your property, a potential buyer considering a home with an existing mortgage, or a real estate enthusiast seeking insights into this process, you're on the right page.

This blog post is your all-in-one guide to navigating the sale of a mortgaged property.

Selling a Home with a Mortgage: Understanding the Basics

Before delving into the finer details, let's start with the basics. Selling a house with a mortgage means that you'll be transferring ownership of the property to a new buyer while there's still an outstanding mortgage balance.

In essence, you'll be selling the home, but the mortgage loan and the related monthly payments remain in your name until paid off.

Different Types of Property Mortgages & Selling Implications

What about all the types of mortgage loans? For example, can you sell a house with a reverse mortgage? You can, but it comes with the catch of settling the complete loan amount, encompassing both interest and additional fees.

Here are some other common types of mortgages you might have on your home and their implications for selling:

  • Fixed-Rate Mortgage: Typically straightforward to sell as the interest rate remains constant, making it easier to predict and plan for future payments.
  • Adjustable-Rate Mortgage (ARM): Selling may be more complex if the interest rate has adjusted significantly.
  • FHA Loan (Federal Housing Administration):  Government-backed loans with more lenient requirements. However, you can have only one FHA loan at a time, so if you intend to sell one property and acquire another, you must pay off the existing FHA loan before obtaining a new one for your new home.
  • VA Loan (Department of Veterans Affairs): VA mortgages grant you the flexibility to sell your home whenever you wish to.
  • Interest-Only Mortgage: Buyers may be attracted to lower initial payments but should be aware of potential payment increases in the future as you'll be required to settle the entire remaining loan balance upon the sale.
  • Second Mortgage (Home Equity Loan or Home Equity Lines of Credit (HELOC): Selling may require paying off the second mortgage before transferring ownership to the buyer.
  • Assumable Mortgage: Allows a buyer to take over the seller's existing mortgage, potentially making the property more attractive. However, not all mortgages are assumable, and the buyer must meet the lender's criteria.

Selling a House with a Mortgage 101: The Mortgage Balance

One of the first things you need to consider when selling a house with a mortgage is the outstanding mortgage balance – this is the amount you owe to your mortgage lender. It's crucial to determine this entire loan balance accurately because it directly impacts the financial aspects of your sale. 

Here's a real-life example of this from a financial perspective: Let’s say you have a mortgage balance of $150,000, and you're planning to sell your home. You'll need to ensure that you receive at least $150,000 from the sale for loan payoff.

Don't forget to give your mortgage loan documents a thorough check, specifically keeping an eye out for those sneaky "due-on-sale clauses." These protect the lenders, requiring that homeowners settle their entire mortgage payoff in full after they sell their house or hand over the deed to another soul.

Equity: Your Key to Selling

Equity plays a pivotal role in selling a house with a mortgage. Equity is the difference between your home's current market value and the outstanding mortgage balance. If your home has appreciated in value since you purchased it or if you've made significant monthly payments over the years, you likely have built up equity.

Let's say your home's current market value is $250,000, and your mortgage balance is $150,000. In this scenario, your equity would be $100,000 ($250,000 - $150,000). This equity is what you can potentially pocket from the sale. A general rule of thumb is to consider selling your home when you've built up around 20% equity in it.

Keep in mind that the balance you see on your monthly loan statement isn't the same as the payoff sum, which is the total amount of money needed to clear the loan completely and bring it to a close. Requesting a payoff quote from your primary mortgage lender can provide you with a clear and precise picture of your outstanding mortgage balance, helping you gain precise insights into your financial obligations.

You'll be in a much stronger selling position when you've got a firm handle on your loan balance, monthly mortgage payments, and any potential charges tied to squaring off your loan ahead of schedule.

Selling house with a mortgage on it

Different Types of Equity

Understanding the various forms of equity tied to your home can help you assess your financial capacity to make a new purchase prior to selling your current property

Market equity represents the home value/outstanding mortgage difference described above. On the other hand, investment equity encompasses the value increase generated by improvements or renovations made to your property. 

Evaluating these equity types will provide valuable insights into your readiness to venture into a new real estate transaction before completing the sale of your existing home.

What Happens If You Have Negative Equity?

While positive equity is a seller's best friend, negative equity is a potential obstacle. Though it's not a frequent occurrence, there are cases where the remaining mortgage balance surpasses the actual value of the property. Negative equity occurs when your outstanding mortgage balance is higher than the current market value of your home, falling short of covering your outstanding loan balance and selling expenses. 

For example, if your home's market value is $150,000, but your mortgage balance is $175,000, you have negative equity of $25,000, which you would need to cover to sell the property. In such cases, you might have to bring cash to the closing table to bridge the gap between the selling price and your mortgage balance.

Selling a home with negative equity should definitely not be your first option. In these circumstances, delaying the sale for a longer period of time could be a smart move. After all, due to high closing costs and agent fees, the expenses linked to selling your house can add up significantly, so this is it's typically an eleventh hour solution for those facing financial hardship.

Selling a House with a Mortgage: The Step-by-Step Selling Process

Now that you have a grasp of the essential concepts, let's outline the general steps involved in selling a house with a mortgage on it:

1. Consult with a Real Estate Agent

An experienced real estate agent can be your guiding light through the entire process. They can help you determine a fair listing price, market your home effectively, and navigate negotiations with potential buyers.

However, note that it's also possible to execute a home sale independently, by yourself, bypassing the involvement of a listing agent - a scenario commonly referred to as a "for sale by owner" or FSBO transaction. This way, you can avoid paying real estate agent commissions.

If you do decide you need a hand from a professional, look for top-rated real estate agents for guidance and help.

2. Calculate Your Sale Price

Work with your real estate agent to determine a competitive sale price for your home. This price should ideally cover your current mortgage (outstanding mortgage balance) and any transaction costs and selling expenses involved, such as real estate taxes and closing costs.

3. Prepare for Potential Buyers

Your real estate agent will help you stage and prepare your home for sale and market it to potential buyers. Be prepared to showcase your property in its best light.

4. Deal with Mortgage Prepayment Penalties

Check your mortgage agreement for any prepayment penalties. These are fees imposed by your mortgage lender for paying off the loan before a specified period. 

While not all mortgages have these penalties, it's essential to be aware of them and check the list of fees for yours because this cost should be factored into your sale proceeds calculation.

5. Provide a Mortgage Payoff Statement

Contact your mortgage company to obtain a mortgage payoff statement. This document is the payoff quote we mentioned earlier and outlines the exact amount required to pay off your mortgage loan. 

It includes the outstanding balance, interest, and any additional fees or property taxes.

6. Navigate the Closing Process

Once you've accepted an offer from a buyer, the closing process begins.

This involves working with a title company to transfer ownership, settle any remaining outstanding mortgage debt and mortgage payments, and handle other necessary paperwork.

7. Use Sale Proceeds to Pay Off Mortgage

At the closing table, the sale proceeds will be used to pay off your mortgage loan. Any remaining funds are yours to keep as profit.

For example, if your sale price is $200,000, and your mortgage payoff statement indicates an outstanding balance of $150,000, you would receive $50,000 as the profit from the sale.

Additional Considerations

Here are some other factors to keep in mind when selling a house with a mortgage:

  • Impact on Credit Score

Selling a house with a mortgage can affect your credit score. While paying off your mortgage can have a positive impact, any late payments or delinquencies during the sale process can hurt your credit.

  • Buyer Qualifications

If you're selling to buyers who plan to assume your existing mortgage, they must meet the lender's qualifications and approval process. Not all mortgages are assumable, and eligibility criteria can vary.

Considering Buying a Home with an Existing Mortgage?

If you're in the market for a new home and you've come across properties with existing mortgages, there are some advantages to it. Buying a house with a mortgage can offer unique opportunities, potentially allowing you to secure a property with a competitive interest rate and a well-established payment history.

However, as with any home-buying process, do your due diligence – thoroughly inspect the property's condition, potential maintenance issues, etc. Getting an independent property appraisal to ensure you're paying a fair price for the property and that it aligns with your financial goals is always a wise move.

Sell Your House with a Mortgage As-Is Today

Selling a house with a mortgage can be a viable option for many homeowners. Understanding your outstanding mortgage balance, equity, and the selling process is crucial to making informed decisions. Whether you're aiming to maximize your sale profit or considering purchasing a property with an existing mortgage, this way, you can navigate the real estate market with confidence.

The real estate industry is dynamic, but armed with the right information, you can make the most of your opportunities in this ever-evolving market. At SleeveUp Homes, we'll buy your home directly from you as-is for top dollar! We'll have you covered with a fantastic cash offer that beats the rest. Plus, we'll handle any of those pesky repairs you would otherwise need to get your home ready for sale.

Feel free to request a no-obligation cash offer today!



If you want to sell fast and are worried about how long the traditional process takes, and the commission and fees involved, consider working with SleeveUp Homes.