Skip to Main Content

Selling a home with a mortgage

For sale sign stating, "Buy this home and we'll buy yours!"
SAUL LOEB/Getty Images
For sale sign stating, "Buy this home and we'll buy yours!"
SAUL LOEB/Getty Images

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

ON THIS PAGE Jump to Open page navigation

There are many reasons you might want to sell your home. You could be trading up as your family grows, or moving to a new city for a career opportunity. You may even be planning to put the proceeds toward buying a new home. Whatever the reason, selling your home can be an exciting process — and sometimes a scary one. If it is not fully paid off, you might be worried about how the outstanding mortgage will impact your ability to sell. The good news? There’s no need to worry.

Can you sell a home with a mortgage?

In short, yes, you can sell a home even if you still owe money on the mortgage. In fact, it’s common for people who still have mortgage debt to sell their home. To do so, you must repay the balance of the mortgage when you complete the sale.

“Most people who sell their homes have outstanding mortgages,” says Melissa Cohn, regional vice president of William Raveis Mortgage in New York City and Florida. “Having a mortgage does not get in the way of the sale of a home, as long as there is enough equity to pay it off in full when they close.”

Equity is the key in this situation. Basically, your home equity is equal to the value of your home minus the outstanding mortgage balance. For example, if your home is worth $250,000 and you owe $100,000 on the mortgage, you have $150,000 in equity. This is the amount of cash, minus seller expenses, that you will receive at closing. This positive home equity is necessary for you to be able to pay off the loan using the proceeds from the sale: As long as you sell your home for more than the outstanding balance on the mortgage, you will be able to pay off your mortgage.

You can grow your home equity by paying down your loan balance or realizing an increase in your home’s value, either by natural market shifts or by implementing upgrades that boost its value.

Bankrate Insight
If you can afford to, a great way to increase your equity is to make a 13th mortgage payment every year and specify that it should be applied to principal. This pays down your mortgage faster by reducing the interest paid on the outstanding balance.

Keep in mind that you’ll have to pay closing costs when you sell, which can include Realtor commissions and more. So if your equity is just barely positive, it might not be enough. If you don’t have enough equity in your home to repay the mortgage with the proceeds from the sale, you’ll have to use other funds — such as savings — to make up the difference.

Steps 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 off as part of the closure of the sale. Here are four steps to follow.

1. Contact your lender for a payoff statement

The first thing to do if you’re thinking about selling your home while having a mortgage on it is contact your lender and ask for a payoff statement or letter. This document tells you how much you’ll need to pay the lender when you sell. The payoff amount will change every month, even on a fixed-rate mortgage, since you’re making monthly payments. So be prepared to get a second statement when your closing date is set.

A payoff statement has instructions for how you can submit a final payment to repay a loan in full. It will give you a specific amount to pay, which includes any accrued interest and other charges, as well as the due date for the payment. It may also include penalties for prior late payments.

2. Estimate home value and net proceeds

Once you know how much you’ll need to pay off, it’s time to start estimating the value of your home and how much you can expect to receive from selling it.

There are many ways to estimate how much your home is worth, but a good place to start is to look for comparable homes, or comps, in your area. Seeing how much other, similar homes in your area are selling for can help you understand how much your own home might sell for.

You can also try typing your address into an AVM, or automated valuation model. These online tools can also help you get an estimate of your home’s worth, though they are not guaranteed to be accurate.

You’ll get the most accurate valuation, though, by hiring a professional appraiser. Not only will a pro appraisal make you an educated seller, it can also be an important selling or negotiating tool.

Regarding how much you’ll make on the sale, keep in mind that if you owe $150,000 on your mortgage and you sell your home for $300,000, that remaining $150,000 isn’t all pure profit. Selling a house costs money: You’ll likely work with a real estate agent and a lawyer, who will need to get paid (be sure to negotiate commissions and services before you list, not after). And there may be other closing costs to pay as well, so some of the proceeds will go toward that.

In general, expect to pay between 7 percent and 10 percent of your home’s value in fees. Make sure that your actual net proceeds are sufficient to pay off both your mortgage and the fees. You should get a settlement statement before your closing that outlines all these costs.

3. Find a good agent and set a fair listing price

If you feel good about the value of your home and that the net proceeds can cover the remaining balance of your mortgage and fees, start looking for a real estate agent. Finding a good agent who you like is essential, because you’ll be working with them throughout the sale process.

A good agent can help you understand the local market and set a fair listing price for your home. They may advise staging the home to help generate more interest, and they can help you analyze any offers that you receive to make sure you’re getting the best deal possible.

4. Sell the home and pay off mortgage

Once you receive a good offer and accept — congratulations! — it’s time to begin the closing process. You’ll likely have to wait for things like the buyer’s appraisal and inspections to be completed before you’re ready for closing day.

When you close on the sale, you’ll use the proceeds to pay off your mortgage lender and any outstanding fees or closing costs. A representative of the lender will be at the closing to collect the money due to them. Whatever is left over after that is your profit — that’s the money you get to keep. For example, if you sell for $300,000 and owe $150,000 to pay off the mortgage, plus $20,000 in closing costs, your profit is $130,000.

What happens to your mortgage when you sell?

When you sell your home, you pay off your mortgage balance on the home in full. That means you’ll be done with that debt. Depending on the terms of the mortgage, you might be charged a prepayment penalty or early repayment fee. This fee is charged when you pay the loan off ahead of the preset schedule.

In addition, many mortgages involve an escrow account. If any money related to your mortgage was being held in escrow, the balance of that account will be refunded to you. (Escrow funds won’t be turned over at the closing table — it may take a few months.)

What happens when you sell your house for a profit?

Ideally, your home will have appreciated in value while you owned it and will sell for more than you paid for it. Selling for a profit is good, of course, but depending on just how much you make, you might owe capital gains taxes on the proceeds.

Typically, to trigger capital gains taxes in real estate, the home would have to have been your primary residence, and you would have to have made a significant amount — hundreds of thousands of dollars — on the sale. If you sell a primary residence, you can exclude the first $250,000 in profit, or the first $500,000 if you’re married and file taxes jointly.

Bottom line

Selling a home that has a mortgage on it is very common. In fact, it’s likely that most real estate transactions involve homes for which the seller still has a mortgage. Make sure you know your home’s payoff amount and your expected proceeds from the sale, after commissions and closing costs. That will give you the clearest picture of how much money you’ll make on the sale when all is said and done.

Written by
TJ Porter
Contributing writer
TJ Porter is a contributing writer for Bankrate. TJ writes about a range of subjects, from budgeting tips to bank account reviews.
Edited by
Senior real estate editor
Reviewed by
President, Real Estate Solutions