Can You Sell a House With a Mortgage?

After the rise in remote work, people could travel and dream of living in their ideal location, no longer tied to an office. The real estate market soared with people buying and selling their houses at an incredibly fast turnaround, and it presented an opportunity for people to pursue a home in their dream location. 

However, it’s also led to questions: What do you do with your current mortgage? Are you able to move to another home before you pay off your mortgage? The answer is yes, you’re able to move no matter how much of the remaining mortgage you have, but it may not always be the right circumstance.

Let’s walk through the basics of the selling process before paying off your mortgage and how to determine which strategy is best for you. Generally, most home loan terms last for 30 years. There’s no need to wait three decades to make a change and start living your best life. Few people do, so why should you?

Step 1: Determine Loan Balance

First things first, it’s important to know how much you owe your mortgage lender, otherwise referred to as your mortgage payoff amount. This is one of the primary factors that will dictate the listing price of your current home and your budget for the next. The key to staying financially afloat, in the “green” so to speak, is to maintain a balanced equity, i.e. don’t plan to purchase a home with a larger mortgage than what you currently owe. 

At this stage:

1. Make sure you’re up to date with all your mortgage payments. 
   Once you know your loan balance (which has accumulated interest from when you initially received the loan), you can plan on using the money from the home sale to pay off your mortgage if your house is worth more than what you owe the bank.
2. Check your loan paperwork for due-on-sale clauses.
   Due-on-sale clauses are stipulations that help protect your mortgage lender by essentially requiring you to pay your loan in full after selling your house or transferring the deed. If this is the case, they will want the loan balance paid off before somebody else moves into the property.
3. Check for prepayment penalties. 
   If you sell your house first without paying off your mortgage, there might be a prepayment penalty. Nowadays, these penalties are less common and some only cover a specific time frame (like if you sell within four years of buying). The cost of this penalty varies and can be a fixed rate, a percentage of your remaining loan balance or a percentage of owed interest.

Note: You only need to inform your mortgage lender that you intend to sell your home when you’ve accepted an actual offer on the property. Your lender will have little to no say on who you sell your house to—they are only entitled to ask for proof of funds or preapproval. As long as your buyer gets preapproved for a mortgage loan, everything should transfer without hassle.

Step 2: Find Out How Much Equity You Have

Determine how much equity you have in your current home by subtracting your outstanding mortgage balance from the current market value of your home. This will help you understand how much money you can put toward your next home.

Step 3: Work With Agents to Configure an Estimated Settlement Statement

After figuring out your remaining loan balance:

1. Find a real estate agent.
   They will put your house on the market at a price that will ideally cover your home loan. They’ll also open an escrow account for you—a place to keep money and documents to make the sale official. 
   You should also have a title agent to help transfer your house’s title. Inform your title agent of the amount you still owe your lender and your account number.
2. Determine closing costs.
   Once the real estate agent opens the escrow account, they’ll be able to take a look at it and give you an estimate of the closing costs. Though this can change depending on what the house sells for and the timing of the sale, this estimated settlement statement will give you a better idea of how much money you’ll get to pocket for future investments.

Step 4: After the Sale, Pay Your Lender

After signing all the necessary paperwork for the deal’s closing, the title agent can send off your final mortgage payment and legally transfer the title to its new owners (who make their first payment to this escrow account). Work with your lender to ensure all necessary steps are completed and confirm the mortgage is fully paid off.

Step 5: Consider Investing Any Remaining Funds in Your Next Home

After paying off your mortgage, consider using any remaining funds as a down payment for your next home. Putting more money down up front can shrink your monthly mortgage payment amount, reducing the total interest paid over the life of the loan, and potentially help you avoid private mortgage insurance (PMI). Investing in your new home increases your equity from the start and can provide financial stability and peace of mind.

Possible Setbacks

Selling your house with an existing mortgage can present several challenges:

• Owing more than your house is worth (negative equity). 
  In some cases (fewer than 10%), selling your house won't cover your mortgage. Options include refinancing, paying the lender in cash at closing if you can afford it, or holding off on selling to gradually pay your debt.
• Navigating short sales or refinancing options. 
  If you do owe more than the home is worth, you can request a short sale where the lender agrees to lower the amount. Often done to avoid foreclosure, these usually price the house below market value and may require all-cash payment.
• Managing the timing of selling and buying another home. 
  Ideally, you should sell your house first and use the profits to pay off your mortgage, cover commissions, fees, and closing costs, and leave some money for savings or your new house.

Selling Mindfully With a Mortgage

Remember, you’re responsible for your mortgage until the sale officially closes. Your settlement statement, otherwise known as the closing statement, will have an itemized list of expenses, detailing who pays for what and your net profits. Review this settlement statement carefully to see how your mortgage is being handled, especially whether payments are being paid as they usually would or if they’ll be accounted for at the closing table.

Frequently Asked Questions

Can you transfer your mortgage to another house?

Most mortgages aren't transferable, but check with your lender. Most often, you’ll need to sell your current home, pay off the mortgage, and apply for a new one.

Can I take over my parents' mortgage?

Yes, if the mortgage is considered assumable. This is often done through FHA and VA loans. Contact the mortgage lender to confirm requirements and eligibility.

How do I handle closing costs?

Closing costs are typically deducted from the sale proceeds. Your agent will provide an estimated settlement statement.

Do I need to inform my lender about the sale?

Yes, once you accept an offer, inform your lender to ensure a smooth transaction.

Can I buy a new home before selling my current one?

Yes, but you'll need to qualify for a new mortgage while still paying your existing one. Pre-approval is recommended.

Simplify Your Home Sale With 800CashToday

If you need to sell fast or want to avoid the traditional home sale process, consider a cash home sale with 800CashToday. We make the process quick and straightforward, helping you move on to your next adventure with ease.

Call 1-800-CashToday now to get started!