Can You Sell a House with a Mortgage?

a mortgage closing costs application being stamped with an approval stamp

Navigating the home-selling process can be complex, especially when you’ve not done it before and there’s a mortgage involved. If you’re getting ready to sell your home but are unsure about what happens to your mortgage, you’re in the right place. Today, we’ll demystify how mortgages work when you want to sell your home so you can make empowered decisions as you move forward. 

What is a mortgage?

Before we move on to how to sell a house with a mortgage, let’s get a clear understanding of what a mortgage is. A mortgage is a loan to buy a home that’s secured by the home it buys. In other words, if you were to stop paying your mortgage for any reason, the lender would have the legal means to seize and sell the property to recoup their losses. This is not the case with personal loans, in most cases. 

Typically, a mortgage has a very long payment period, such as 15, 25, or 30 years, paid in monthly installments. There are different types of mortgages, but the most common type is a repayment mortgage where you pay off the full amount of the mortgage over that term, plus the interest the lender charges for lending you the money. 

As time goes by, you own an ever-increasing share of the property, until eventually, you own the property in full. This is why a mortgage is generally the only kind of consumer debt that can help you improve your net worth – because you’re building equity over time. 

But what happens when you decide to move before the mortgage term comes to an end? 

Can you sell a house with a mortgage? 

Yes – in fact, most people do not own their homes outright and so the majority of people are selling their homes with an outstanding mortgage. If you are up-to-date with your mortgage payments, you can sell your home without speaking to your mortgage company and your mortgage will not have any effect on the price you sell your home for. 

This is also the case if you’re still in a fixed-term mortgage – being in a fixed term doesn’t mean you tie yourself into the mortgage for any length of time, it simply means that you’ve agreed to pay a certain interest rate for the duration of the fixed rate period. 

According to Pavel Khaykin, founder of Pasha Funding “Successfully selling a house with a mortgage requires a thorough understanding of your loan terms, diligent preparation, and strategic decision-making. By leveraging your equity, communicating with your lender, and enlisting the expertise of a real estate professional, you can navigate the process with confidence and achieve a smooth and profitable sale.”

How does the mortgage get paid when you sell your home? 

The attorney or title company dealing with your property sale will first pay off the mortgage, and then give you all the remaining proceeds from the house sale. 

You can learn more about mortgage closing costs and payments on our website.

What if my home is worth less than the mortgage? 

If you owe more on your mortgage than the home’s value, then you are “underwater.” In a best-case scenario, in this situation you would speak to your lender who would agree to a “short sale”, which would allow you to walk away from the property without equity but also without debt. You need to navigate this situation carefully as if they don’t agree to a short sale before you sell, you will likely be liable for the remaining amount on the mortgage. 

What are the steps when selling a house with a mortgage? 

Selling a house is always a daunting process, but the good news is that in any case where your house is not underwater (i.e., is worth more than the amount you owe on the mortgage), your mortgage will not make a big difference to the sale of the home. Here’s a general guide to the steps you’ll need to take: 

Step 1: Gather information on your mortgage 

Before you put your house on the market, gather all the documentation you have and need for your mortgage. If you don’t have any recent statements, reach out to your lender and ask them to send them to you. You need to know exactly how much you owe so you can make informed decisions in the next few steps. 

Step 2: Decide how you want to sell 

Most people list their homes with a realtor and sell them on the open market, but that’s not the only way to sell. You can also choose to sell your home independently. If your home needs some work, you may want to consider selling your home fast to a cash buyer. You can find out more information about these ways here: 

Step 3: Reach out to your chosen professional 

Depending on how you choose to sell, your next step will be to reach out to the professional you want to work with. For most, this will be a realtor in your area with a good reputation, but it may be an auction house or house-buying company. They’ll be able to tell you what kind of price you can realistically expect to get for your home. Make sure you’re clear on any fees they charge – while a home buyer won’t charge any fees, realtors and auction houses will usually charge a percentage of the home’s value. 

Step 4: List the home for sale 

If you are going to be selling your home publicly, it’s time to prepare the home for sale, get professional photos taken, and list it on the MLS. Then you’ll need to be ready to have viewings and be patient as you wait for the right buyer to find your home. 

Step 5: Negotiate and close 

When a buyer wants to put in an offer, you can negotiate and hopefully agree on a selling price. Then the professionals working with you (real estate attorney, realtor, and title company) will get to work making sure everything is ready for the sale to close. When it does, you’ve successfully sold your house and you’ll get the money in your bank account or as a check the same day, or within 3 days. This will come to you after the company handling the sale has paid off your mortgage. 

Closing thoughts

In conclusion, while selling a house with a mortgage may initially appear complex, it is a manageable process with the right knowledge and preparation. By understanding your mortgage details, building equity in your property, working with professionals, timing the sale strategically, and effectively marketing your house, you can navigate the process successfully and achieve a favorable outcome. Remember to stay organized, communicate openly, and seek expert advice when needed to ensure a smooth and rewarding selling experience. If you want to move quickly, we can help. We buy homes in Philadelphia for cash and can give you a cash offer for your home. This allows you to avoid the costly fees of realtors and auction houses and close in just weeks, rather than months. To discuss your options and get cash for your house, get in touch with us!