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Selling a House With a Mortgage: All You Need to Know

By Tom Burchnell
selling a house with a mortgage

Should I sell my house in the first place? How does selling a house with a mortgage work? Read on to find out!

You’re ready to move—you’ve taken your dream job in a new city, you’re relocating in retirement, or you’re simply ready for a change of scenery. But, you still have an outstanding mortgage on your current home. 

Can you sell a house with a mortgage? The answer is yes—you can sell a house with a mortgage. 

Although it’s a common real estate practice, selling a house with a mortgage isn’t always straightforward, depending on your current financial circumstances. In this article, we’re going to show you how to sell a house with an outstanding mortgage by describing the key considerations you should take before selling and what the process will look like. 

Can You Sell a House With a Mortgage?

Yes—you can sell a house even if you still owe a portion of your mortgage loan to your lender. You’ll mostly follow the typical home sale process, but you’ll have to take a few extra steps:

  • Check how much you still owe on your current mortgage by obtaining a payoff quote. 
  • Price your home so that profits from the sale will cover your remaining balance.
  • Consider how your reason for selling will impact your ability to secure a new home in the future.

Let’s explore each of these elements in more detail, as well as other important considerations.

Key Considerations for Selling a House With a Mortgage

Before you stick that For Sale sign in the yard, consider a few financial elements that could impact the process. 

Are You Up-to-Date on Payments?

Is your mortgage current—meaning you’ve made a payment for this month and all months prior without any outstanding funds due? 

If you’re not up-to-date on your mortgage payments, you should discuss your options with your mortgage lender before selling. Your lender may provide other options for reducing your monthly mortgage payment, like a mortgage recast or refinance.

Now, what happens if you miss a mortgage payment? If you’ve missed enough payments to warrant a foreclosure, make sure that you communicate your intentions to sell with your lender. They may pause the foreclosure process if you sell your home and completely repay your mortgage within a certain amount of time. 

Will You Be Approved for a New Mortgage or Rental?

Before you sell your home, consider that you still have a roof over your head. 

Review your credit score and consider your general creditworthiness to determine whether or not you’ll qualify for a new mortgage loan or get approved for a rental property. You might assume that you’re creditworthy because you secured your previous mortgage, but the following possible circumstances could make you a high-risk borrower:

  • If you’ve recently become self-employed, most lenders require evidence of at least two years of self-employment income.
  • If you’re at risk of foreclosure, your credit score has likely gone down due to your inability to make regular payments on your mortgage. 
  • If you’ve changed careers or acquired new debt recently, your debt-to-income ratio may be too high to qualify you for a new loan. 

Are You Upside-Down on Your Mortgage?

If you’re upside-down or underwater on your mortgage—meaning that you owe more than your home is worth—you should carefully consider whether or not selling your house with a mortgage is the right move. Instead of going the traditional sale route, consider these other options:

  • Waiting – Waiting for the market to bounce back is usually the best option for upside-down homeowners. Once the market recovers, you’re more likely to recoup your equity and repay your mortgage balance using sale proceeds only.
  • Opting for a short sale – In a short sale, a lender agrees to lower your mortgage balance to reflect what your home is worth. Then, when you sell, you use the proceeds to pay your reduced balance. 
  • Sale-leaseback program – Consider a sale-leaseback program if you’re struggling financially but still want to stay in your home. Providers will purchase your home at fair market value, lease the property back to you so that you don’t have to move, and allow you to buy your home back when you’re ready. 

How Selling a House With a Mortgage Works

If you’re financially prepared to sell, it’s time to get the ball rolling:

  1. Make any final modifications that could add value to your home.
  2. List your home, and spread the word that it’s on the market.
  3. Review offers, select the best one, and negotiate with the potential buyer. 
  4. Seek a payoff balance from your mortgage lender to determine how much you still owe on your existing mortgage.
  5. Complete the closing process, pay all closing costs, and repay your loan in full. 

The payoff balance statement is crucial—since you owe interest for every day that you’re still in your current home, the statement will give you a final mortgage payment amount and an expiration date. If you sell before the statement’s expiration date, you’ll receive a refund for interest overpayment. 

Sale-Leaseback: A Flexible Alternative Solution

If you’re selling your house with a mortgage to try to pay off other debts, prepare for retirement, or expand a business, you should know that there’s another solution: Sale-leaseback.

With a sale-leaseback you can convert your home equity and achieve your financial goals without having to leave your home. How?

  1. Sell your home for fair market value.
  2. Stay as a renter as long as you need.
  3. So programs even let you buy your home back or sell it on the open market when you’re ready.

Key Takeaways

Ready to sell your house? If you have a mortgage but are ready to move, talk to a financial advisor to consider your options and see what could work for you.

Sources: 

Investopedia. Avoid These Mistakes When Selling Your Home. https://www.investopedia.com/articles/mortgages-real-estate/08/home-seller-mistakes-selling-house.asp 

Investopedia. How Many Mortgage Payments Can I Miss Before Foreclosure?. https://www.investopedia.com/ask/answers/081516/how-many-mortgage-payments-can-i-miss-foreclosure.asp 

US News. Can You Get a Mortgage If You’re Self-Employed?. https://money.usnews.com/loans/mortgages/articles/can-you-get-a-mortgage-if-youre-self-employed

NerdWallet. What is a Short Sale?. https://www.nerdwallet.com/article/mortgages/what-is-a-short-sale 

Topics:
Mortgages
Real Estate
Selling
Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

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This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.