You won’t personally have to worry about making sure your lender gets paid. Helali explains: “When the buyer of your home makes the purchase, the escrow company will receive all of the funds, and they’ll write a check directly to your lender.”
Top questions about selling with a mortgage
Now that we’ve reviewed the general process of selling a house with a mortgage, let’s clear up some common points of confusion while addressing unique circumstances that may cause your path to look a little different.
What if your house is underwater?
Selling a house with a mortgage is extremely common. In most cases, to satisfy the loan obligation, you simply need to put your house on the market, find a buyer, and pay off your mortgage debt when the deal closes. However, things can get trickier when you owe more on your mortgage than your home’s actually worth, a situation called negative equity.
In the fourth quarter of 2024, the number of homes with negative equity rose by 9.3% from the previous quarter, reaching 1.1 million properties, about 2% of all mortgaged homes. Compared to the same time the previous year (Q4 2023), negative equity was up 7%, rising to one million homes or 1.8% of mortgaged properties.
If you’re underwater on your mortgage, you’ll need to work out a different solution of some kind.
“Normally, someone that’s underwater is not going to sell. But if they’re in a spot where they don’t have a choice, if they can afford to pay the difference and sell the property, some people will do that,” Helali shares.
“For most folks, that’s not an option,” he adds. “At that point, they’ll need to contact the lender to request a short sale, which is when you sell for less than what you owe.”
The lender must agree to the short sale and approve an offer before you can move forward with the transaction. Depending on the situation, it may be possible to work out an arrangement or modified payment plan.
Who is responsible for the mortgage during the sale?
A borrower is required to make on-time mortgage payments until the outstanding balance is paid in full. So as you prepare and price the home for sale, navigate offers and negotiations, and wrap the steps to closing, you’ll continue to make mortgage payments in the same way you always have.
“Keep making your mortgage payments until the day of closing,” Bartlett says. “You don’t want to get caught up in the selling process and become late on your mortgage because that will really hurt you when it comes time to buy another house.”
How soon can you sell a house you just bought?
You can technically sell your house at any time. A homeowner’s decision to sell abruptly often stems from an unplanned life change, such as a job loss or relocation, a death in the family, a divorce, or an injury or medical condition.
That said, real estate isn’t a get-rich-quick scheme. Although some markets might see quicker appreciation, in most cases, the value rises slowly over time, making it advantageous to hold on to the home for a while before selling, if possible.
Can you sell a home before it’s paid off?
The short answer is yes. The timing of when to sell a home is a personal decision and is dependent on your circumstances and financial goals. However, keep in mind that if the value of your home won’t cover your outstanding mortgage balance and selling expenses, you’ll need to bring separate funds to the sale to cover the difference.
“It comes down to how much equity you have in your home,” Bartlett says.“It all depends on the seller’s individual situation.”
That said, Bartlett notes that in his experience, waiting at least a couple of years tends to be important for at least breaking even on your home sale.
“Because of closing costs and agent fees, it’s expensive to sell your house,” Bartlett explains. To ensure you’re coming out ahead, it can, as a general rule, be beneficial to let your home appreciate for at least a couple of years before you sell.
Another thing to keep in mind is that if you sell the home before owning it for a minimum of two years, you’ll likely have to pay capital gains tax as a result of the sale.
