Selling a house is often seen as the final step in homeownership – a chance to move on to a new chapter after the mortgage has been paid off. But what if you want to sell before you’ve paid off your home loan? The good news is, you typically can sell your house before paying off the mortgage Here’s what you need to know about the process
Do You Have to Pay Off Your Mortgage Before Selling Your House?
The short answer is no. You don’t need your mortgage to be fully paid off in order to sell your house. The important thing to remember is your home equity, which is the difference between your home’s current market value and what you still owe on the mortgage.
You can sell your home and use the money from the sale to pay off your mortgage as long as you have positive equity, which means the home is worth more than you owe on it. This happens a lot—estimates from the industry show that more than 60% of people who sell their homes still have a mortgage when they do so.
Why Would You Sell Before Paying Off Your Mortgage?
There are many reasons why homeowners choose to sell before fully paying off their mortgage:
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Relocating for a new job With today’s mobile workforce job relocations can happen frequently. Selling and moving is often easier than trying to rent out your home long distance.
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Moving up or down: As your family grows and your space needs change, you may decide to sell your current home and buy one that is bigger or smaller.
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Big events in your life, like getting married, divorced, retired, losing a spouse, or becoming disabled, may force you to move to a better home.
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Problems with money: If you lose your job or have high mortgage payments or other money issues, you may have to sell your home and move into a smaller, cheaper one.
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Burdensome home maintenance: An aging or high-maintenance home could motivate you to sell and find something smaller and easier to take care of.
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Taking advantage of a hot sellers’ market: Strong demand and rising prices might entice you to sell your home for a good profit even if your mortgage isn’t paid off yet.
How to Sell Your Home Before Paying Off the Mortgage
Selling a home with an unpaid mortgage involves a few extra steps but isn’t overly complicated. Here is the general process:
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Contact your mortgage lender to get a payoff amount. This tells you the exact balance needed to pay off your loan. Get an updated statement right before closing to cover any last payments or charges.
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Determine your home’s estimated market value. Comparable sales and/or a real estate agent can help you price your home competitively.
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Subtract your payoff amount and expected selling costs from the estimated home value to calculate your expected proceeds. As long as this net amount is positive, you have enough equity to sell.
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Hire a real estate agent to list and market your home at a fair price and handle negotiations. Their expertise is invaluable.
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Accept an offer, coordinate inspections, and work through the closing process with your agent.
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At closing, the sale proceeds go towards paying off your mortgage balance and other closing costs. Leftover proceeds are your takeaway equity.
What if You Have Negative Equity?
Negative equity means you owe more on your mortgage than your home’s current value. This makes selling more difficult but not necessarily impossible. Here are some options:
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Short sale: The lender agrees to accept a sale price lower than what you owe in order to avoid foreclosure.
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Deed in lieu of foreclosure: You voluntarily hand over the property title to satisfy the mortgage debt and avoid foreclosure.
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Pay the difference: If your equity shortfall isn’t too dramatic, you may opt to pay the difference at closing so the lender gets the full payoff amount.
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Negotiate with your lender: Discuss options like loan modification or forbearance to make selling possible.
Alternatives to Selling Before Paying Off Mortgage
If selling isn’t the right option, here are some alternatives to consider:
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Refinance your mortgage to lower your interest rate or monthly payments
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Rent out your property to offset your housing costs
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Modify your loan terms by extending the repayment period or reducing the interest rate
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Tap available equity through a cash-out mortgage refinance
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Repair your credit and improve finances to refinance or sell later on better terms
The Takeaway
While conventional wisdom says you should fully pay off your mortgage before selling your house, the reality is you often can and do sell homes with existing loans. Having enough equity is key, so monitor your home value and what you owe. Work with real estate and lending professionals to understand your options and follow the proper steps. With good planning, you can sell your house before completely paying off the mortgage.
Reasons For Selling Your House with An Existing Mortgage
Common reasons to sell your house before its paid off include job relocation, downsizing to a cheaper property, or upgrading to a larger one.
There are some important points to consider when making this decision:
- Equity. If the market value of your house is higher than your remaining mortgage balance, you have equity which can be used to pay off the loan and potentially make a profit when you sell.
- Life changes. Major life events like job relocation, family size changes, or retirement can necessitate selling a house even if you havent fully paid it off.
- Home maintenance. Tired of keeping up with its maintenance and repair needs? This could be due to ageing, physical limitation, disability, or maybe youre just traveling or working too much to keep up. Whatever the reason, selling the property and moving to a less demanding home might be a good option.
- Market conditions. If the housing market is hot and you can sell your house for a good price, it might be a good time to sell even if you still owe money on the mortgage
- Financial strain. If youre facing debt or mortgage foreclosure, selling your home may be the best way to relieve financial pressure.
How To Sell a Home with A Mortgage
In general, you must pay off any mortgage or loans secured on a home when you sell the property. You can list the property for sale and go through most of the process while still owing a balance, but you must pay the loan in full as part of the closing. Here are four steps to follow when selling a house with a mortgage.
1. Contact Your Lender for A Payoff Statement. The payoff statement tells you exactly how much youll need to pay the lender after you sell your home. Keep in mind that this amount will continue to change every month, so be prepared to show a second statement at your closing date. The statement will also have instructions for your final payment.
2. Estimate Your Home Value and Net Proceeds. Once you know how much youll need to pay off, its time to estimate the value of your home and the amount you can expect to receive from selling it. Subtract the amount of your mortgage youll need to pay off as well as other fees (closing costs, realtor commissions, etc.) and youll arrive at your net proceeds. You should get a settlement statement before your closing that outlines all these expenses.
There are many ways to estimate how much your home is worth. If you have a real estate agent, they can help you find the value of your home. If you want to go through the process on your own, you can start by looking for comparable homes in your area that are either on the market or already have sold.
3. Sign With an Agent to Establish A Fair Listing Price. If you feel that the net proceeds you will earn can cover the remaining balance of your mortgage and fees, start looking for a real estate agent. They can help you set a fair listing price, analyze any offers that you receive, help you with itemized costs involved in the process, and assist you with contract details and negotiations. Expertise and reputation are not the only attributes to look for in an agent. Make sure you like them and feel comfortable with them because youll be spending a lot of time together.
4. Sell The Home and Pay Off the Mortgage. Once you accept an offer from a buyer, its time to sign the purchase and sale agreement, which begins the closing process. Most likely, youll need to wait for the buyers appraisal and inspection before you close on the sale. Once you close, the proceeds will be used to pay off your mortgage lender and any outstanding fees or closing costs. Whatever is left is your net proceeds.
Can you sell your house before paying off the mortgage?
FAQ
What happens if you sell your house before it’s paid off?
If you sell it for more than you owe on it, the mortgage holder gets paid off first, the closing costs are deducted, and then you’d get a check for whatever was left. If you sold it for less than what you owed on it, you’d have to come up with the balance and pay it to the mortgage holder (bank, usually).
Can you move out of a house before paying it off?
If you’re considering selling your home, you’re likely wondering, “Can I move before my mortgage is paid off?” Not only is the answer, yes, but you can buy another house at the same time too!.
Can you sell a house if you haven’t paid the mortgage?
Offer a short sale: You need the permission of your lender to sell the property for less than your current mortgage balance; the bank must agree to take a loss. Jan 8, 2025.
Why is it not good to pay off your mortgage early?
More Reasons Not To Pay Off Your Mortgage1) You lose your mortgage interest deduction. 2) You lose a low borrowing cost. 3) You tie up capital in an illiquid asset. 4) You decrease your financial returns. 5) You might start being less efficient with your time. 6) A chance your credit score might take a hit.