It’s believed that most people live in their house for 40 or 50 years. Things have changed since that was a regular occurrence. According to the National Association of Realtors, the median number of years of people living in their homes is 13.2 years, with about 82% of homeowners staying there for up to 15 years.
So, knowing that and that you need to sell, you start to wonder, “Can You Sell a House With a Mortgage?“
The short answer is that you can sell a house with a mortgage on it. The longer answer is that it may depend on your home equity, which is based on your mortgage balance and home value, and the cash reserves you may need.
There are approximately 84 million homes with a mortgage on them. Surely, it must be possible. But we’ll take you through the process of selling your home with a mortgage and explain the subtleties you should know to make the sales process easy.
Understanding Your Remaining Mortgage Loan Balance
First, you should know that the remaining amount of your mortgage balance and a final payoff quote are not the same. It helps to understand that a mortgage is amortized, has a principal and interest, and gets paid over a term. Let’s look at those few things so you can learn about your equity.
When you buy a home, you put a down payment on it. What is left after the down payment is principal. Your mortgage payment will be paid towards both the principal and the interest that is due on the loan. Which brings us to the next thing you should know.
Your monthly payments are both principal and interest. They are paid over a loan term and are amortized. This means that early in the loan, most of your payment will be going towards the interest owed on the loan, while later, more will be going to the principal.
It is best to look at an amortization schedule. You can also use a mortgage calculator to help you determine your payment and be able to look at the amortization schedule to help determine your remaining balance.
Most think you can do that by simply looking at the last statement you received. You will see the remaining principal but not the interest included. It would be better to contact your mortgage lender. They will have the remaining loan balance for your existing mortgage. This is important in figuring out the equity you have in your house.
How does understanding home equity play a crucial role in the decision to sell a house that still has a mortgage?
The easiest way to define home equity is the difference in what you owe on the house, the principal and interest, and what the value of the house is. One is easy to determine, and the other is a little more difficult. It also might be best to get help with it.
The important thing is that you should know if your home has equity before you decide to sell it with a mortgage on it.
How do you determine home equity?
Knowing the principal loan balance, you can determine your equity. The next piece is determining the approximate value of your house.
Most people will look at websites such as Zillow or Redfin to estimate their home value. While it is quick and easy for most, it won’t be the most accurate. Those sources may forget about any earned equity you may have. The most accurate values will come from a real estate agent.
A real estate agent will give you the approximate value of your home by providing you with a comparative market analysis or a CMA. These valuations compare recently sold properties, called comparables or comps, to yours to give the most accurate value. They will consider the condition of your home and the differences between the comparable properties and your home.
They will generally offer this as a free service to hopefully list your home when you intend to sell. This is also a good way to continue to verify and monitor your home equity.
Keeping a pulse on your equity may be the difference between an easy sale, a difficult sale, or having to owe money at closing.
When is the Right Time to Sell
Everyone will have a different reason for selling and their situation, so knowing the right time to sell will be a difficult question for anyone to answer. Here are a few things to answer to help determine if this is the right time for you.
Is your reason for selling time-sensitive? If you’re selling because you’re relocating for a job, a divorce, or you’re facing a financial hardship like foreclosure, you will probably need a fast selling process. If you’re thinking of selling because you’re downsizing, inherited a property, or just thinking of upgrading, you may not need a selling process that’s fast. So you can wait out the market a little bit.
What kind of market are you selling in? Some sellers will think it’s the right time to sell a house when it’s a seller’s market. That will help with your price, but you’ll still need to consider pricing properly for your local market. Getting a CMA from a local Realtor is important to help you determine this.
What’s the condition of your property? Most people that buy the traditional way want a more turnkey style home. If yours requires repairs or rehab, it might take longer to sell a house in poor condition.
Can you find a house to buy quickly? Many sellers forget about needing a home to move to, which can delay the sale of your home, and factoring into it being the right time to sell.
How can setting a fair listing price impact the success of selling a house?
Everyone wants to maximize their profit at the end of a home sale. Setting a fair listing price helps you do that. Let’s look at how.
Get multiple offers when selling a house with a mortgage. If multiple people perceive your house to have significant value, it will drive offers from more than one person. It will create a bidding war and drive the price of your house up.
Saving market time and paying off your old mortgage quickly. Remember that overpricing will cause your home to sit on the market for a longer period of time. When someone finally makes an offer, they generally can’t make an all cash offer and will need financing. This will require an appraisal.
You don’t want to be stuck in a tough situation with a high selling price and a low appraisal. There are only a few options for a home sale with a low appraisal.
The Real Estate Agent Role
Good real estate agents with local market knowledge will be extremely helpful in helping you determine a fair listing price to avoid price reductions and market time. You save extra mortgage payments by understanding how to price your property properly. Even though some of your remaining mortgage balance is being paid, remember that most of it is interest in the first part of your amortized loan.
By using a listing agent to sell your house and allowing a CMA to guide your pricing will likely result in a fast home sale and the payment of any mortgage debt still outstanding, which will leave you with higher net proceeds.
Prepare Your House for Sale and Staging
You may not need to prepare your house to complete your real estate transaction. It does help to improve pricing, sell a house with a mortgage quicker, and save interest payments. Let’s look at what to do to sell your house with a mortgage and how to do it.
Improve Property Appeal
When selling a house with a mortgage, there are a few things you should do to present it in the best possible light. There are common things you should do to sell your home, and you should know of other things not to do to sell a house with a mortgage.
Clean and declutter your home for sale. This is the most common home fix you can make, and it creates the greatest return for what you spend. Providing a deep cleaning doesn’t take much time or effort either.
People want to feel like they can move into their new house when they buy, and by allowing them to see a clean, decluttered home, including removing personal items, they can start to envision exactly that.
Make small improvements to improve your sale proceeds. Small improvements, like replacing old door knobs, putting a new coat of paint, or planting some colorful flowers out front, will help improve the appearance. These don’t address things like code violations and are something entirely different.
What key financial responsibilities must sellers be aware of, particularly in covering closing costs?
When you bought the house, you didn’t see the typical closing costs paid by a seller, so you may have thought there really wasn’t any. Here are the closing costs you can expect to pay as a seller.
Real estate agent commissions. Though this may change, and you can negotiate agent commissions, you can expect to pay between 5% and 6% of the total sales price in agent commission. However, this gets split to both the selling and buying agents.
Owner’s title insurance policy. A title company provides title insurance to the new homeowner as peace of mind, knowing that you had no new claims to the property when you owned it.
Prorated property taxes and HOA dues. You’ll have to pay taxes for the portion of time you owned the property. This will be held in an escrow account until closing and will be split between you and the buyer.
If you live with a homeowners association, you will also be responsible for paying your prorated share of those into the escrow account as well.
Selling Your Home and Paying Off the Remaining Mortgage Balance
If you’re still wondering how to sell a house with a mortgage, we will go over the steps now. It’s not complicated, and you won’t need to make a payment before you sell a house with a mortgage, too. It starts with getting a payoff quote from your mortgage lender.
Understanding Your Payoff Quote
You’ll need to contact your mortgage company to get a payoff quote to pay off the loan balance and close the loan before you can move into your new house.
So, what is a payoff quote? It is a quote provided by your mortgage company that includes all interest, principal, and any fees like a mortgage prepayment penalty needed to close the loan by a certain date. They are always dated because your loan continues to accrue interest.
A mortgage prepayment penalty is a penalty for paying your mortgage early. It compensates for the loss of interest from closing your existing mortgage before it is due. Depending on your financial perspective, this may be an acceptable fee.
Some lenders have a deadline of 7 days for the total mortgage payoff amount. It is to make sure that there isn’t a significant overpayment. It is important to ensure you request this as early as possible, but within the right time frame so there isn’t anything left as an outstanding mortgage balance.
The mortgage lender for your new mortgage loan may request this on your behalf, and it will be provided to the closing company when you sell your home. They will provide a settlement statement to show how all funds were disbursed.
Handling Other Outstanding Liens
Unforeseen outstanding liens can stop the sale of your house with a mortgage very quickly, especially if it causes you to have negative equity. Examples include back property taxes, mechanics liens (liens from a contractor), or homeowner association liens. Sometimes, home equity loans may be included as an outstanding lien.
These liens will quickly add to your closing costs and waste any net proceeds. While waiting to pay them off will still eliminate them, you will accrue more interest. So, resolving the liens and paying them off as early as possible is best.
Maximizing Profits and Future Options
On the closing date, after you sell your house, the first thing they will do with the proceeds is to pay off all outstanding debts, including your outstanding mortgage balance. After all debts have been paid, and if there is enough equity, the remaining funds will be paid to you as personal profit.
Depending on your financial goals, you may want to use them to pay down other debts, invest them, or apply them as a down payment for your next home loan.
After you sell your house, applying the remaining funds to the down payment of your next home may improve your existing equity enough by reducing your outstanding balance to under 80% of the value to avoid Private Mortgage Insurance (PMI) payments.
Dealing With Negative Equity
When the value of your home is less than the loans and liens applied to real estate, you have negative equity. This can make it extremely difficult to sell your home without owing money, creating a financial hardship that may require an expert opinion.
Personal finance topics will have varying opinions on how to deal with this. The best option would be not to sell your house and wait until you have more earned equity. Another option is a loan modification. If you’re underwater on your existing mortgage, selling with a short sale might be your only viable option.
Much like saving a house with a mortgage when facing foreclosure, this will hurt your credit and may make it difficult to obtain a loan in the future. Your current mortgage lender must also approve short sales, which will take time.
If you need to sell, there may be other options for you. A cash buyer may be able to help as well. Just remember that you’re facing a bad situation, and the resolution may not be enviable.
Using a cash buyer to help with your mortgage lender when you have negative equity
Cash buyers, like SILT Real Estate and Investments, LLC, can help you with a short sale by providing their expert team to deal with your mortgage lender. Many times, a lender will be willing to trade value of real estate, and even waiving prepayment penalties, for getting a negative loan off their records.
By having an expert attorney intervene on your behalf, you’ll save some of your credit and are more likely to be able to sell your home. This process can be long, but using experts will help speed up the process.
Qualifying for a Mortgage Before Selling
When you have found your dream home and want to move on from your current house with a mortgage, you’ll want to get qualified for a new mortgage loan. The lender’s concern will be a high debt to income (DTI) ratio because of the two mortgages, you’ll have double payments.
If you have difficulty making both mortgage payments and paying all your bills, it will concern the lender. They won’t want you to walk away from a house and leave it to become a house that needs to be sold in poor condition with a loan on it, without ensuring the remaining loan balance is paid off.
They are also like to encourage the sale proceeds to be applied to the new home mortgage. As it will reduce the debt on your new real estate purchase. One way to avoid this is by using a cash buyer who will allow you to pick your closing date so you can apply the house sale proceeds to your new home purchase. And you may be able to save some prepayment penalties if you can push it out long enough.
Selling a house with a mortgage; selling a home with a mortgage is possible. It will depend on your existing balance and available equity. The overall sales price will be applied to your payoff amount first. Keep in mind, that the profits from the sale will be applied to other closing costs like real estate agent commissions, property taxes, and other outstanding liens.
After your home sale has concluded, you’ll be left with the profit to apply how you’d like to. To make this happen, you’ll ultimate want to list it with a fair price and wait out the buying process.
And if you can’t wait for an on-market sale, contact a cash home buyer. They’ll make you a fair, all cash offer to sell a house with a mortgage in as little as 7 days. If you are considering this, it might be best to have a payoff statement ready when you’re ready to reach out. If you want to sell your house fast or want to ask questions, call us at (708) 415-3801 or fill out the short form below.
Frequently Asked Questions
Can you sell a house without having paid off mortgage?
Yes, you can sell a house with an existing mortgage on it. It is actually pretty common for a house seller to sell their existing house to move into another. The current mortgage balance is usually paid in full at the same time as a new home purchase, though.
What happens if you sell a house with a fixed mortgage?
Selling a house with a fixed mortgage means that the interest rate is fixed so that the process will be the same. It is actually the most common loan on a property and is paid off during the house sale.
Can you sell part of a property if you have a mortgage?
You can sell a part of your property if there is a mortgage on it. It does require you to obtain approval from your lender and would also require a partial release.
This would all get filed with the county recorder’s office. It may also require the plot of land to be surveyed and recorded as well.
Is the mortgage discharged when selling a house?
The lender will need to discharge the mortgage when you sell your home with a mortgage. This means that the lender is relinquishing all rights to the property. This would clear the title and allow for the continual sale of the property.
If I sell my house, can I transfer my mortgage?
When you sell your home, you can transfer your mortgage to a new buyer. Remember, it will require lender approval, and it is best to seek legal counsel if you are considering doing this. This would mean that the new buyer assumes the mortgage and is best managed by an attorney.
Remember to contact your mortgage company to determine if they will allow assumptions. Even lenders like Rocket Companies advise that few are assumable, but it is possible.
Can you have two mortgages at once?
You can have two mortgages at once. A home equity loan or line of credit is considered a second mortgage. Remember that when you sell, you must pay off that loan or line of credit completely.