✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home sellers.
Yes, you can sell a house with a mortgage. Most mortgages have 15 or 30-year terms. However, the average American stays for about 10 years in a house. So, selling a house with an ongoing mortgage is pretty common.
That said, it won’t be the same as a free-and-clear sale. You’ll have to factor in aspects like timing, equity, and pricing to ensure you profit from the sale.
Houzeo’s pricing assistance, with dedicated showings and offer management, can help you secure a profit-making deal.
How Does Selling a House With a Mortgage Work?
Technically, a mortgage is a lien that gives the lender a claim to your property. If you are regular with your payments, a mortgage doesn’t impede a home sale.
But there’s a catch. You also have to consider home equity when selling with a mortgage. It’s the difference between your home’s current value and what you owe on your mortgage. And it determines whether you stand to gain or lose from the deal.
Let’s say your home’s fair market value is $300,000, and you owe $200,000. That’s $100,000 in positive equity. To successfully repay the loan and still make a profit, you must ensure that your home equity stays positive.
How to Sell Your House with a Mortgage
Here’s how you can sell your house with a mortgage in 5 steps:
1. Review Your Remaining Loan Balance
Before you start the sale process, check your most recent mortgage statement or contact your lender to obtain the payoff letter. This document outlines your loan balance, late payment charges, if any, and extra fees related to payoff.
2. Determine Your Home Value and Net Proceeds
Comparable homes or comps are a good place to start your home valuation. You can research how similar homes in your area are priced and how long they stay on the market.
You can also go for a professional home appraisal. An appraiser will help you find a market-accurate home value based on its physical condition and real estate trends.
Once that’s done, you will have your home’s selling price to calculate your equity.
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👉 Important: You don’t get to take all of your equity home. You need to consider the closing costs, which amount to 6% to 10% of your home’s value. These include agent commissions, staging costs, and mortgage-related fees.
3. Set a Listing Price
Your listing price will depend on comps, market conditions, and your home’s location. While you might be tempted to aim high, remember that an overpriced home can deter potential buyers.
To ensure that you get the most out of your listing price, you must creatively market your home. Virtual open houses, social media posts, and bidding wars can help you sell fast and for a higher price.
4. Stage Your House for Sale
You can freshen up the paint, rearrange the furniture, and highlight key features of your home.
Additionally, ensure your home’s exterior is in top shape to attract potential buyers. A well-manicured lawn, clean gutters, and a freshly painted front door can increase curb appeal.
You can also hire a professional home staging company to do the job for you. But don’t go overboard with the presentation, as it can mount up your staging costs.
5. Sell Your Home and Close the Mortgage
Once you’ve accepted an offer, you’ll move into the closing phase. Stay prepared to negotiate on details and work on repair requests from home inspections conducted by buyers.
On closing day, funds from the sale will first go to pay off your outstanding mortgage, including any penalties or fees.
What Happens When Your House is Underwater?
Your house is considered underwater when you have negative equity. Also known as being upside down, it means that you owe more on your mortgage than your house is worth.
Let’s say you have an outstanding mortgage balance of $250,000, but your house is only worth $230,000. In this case, you are $20,000 underwater and won’t be able to pay back your mortgage from the sale’s proceeds.
In such a scenario, you can:
- Put your sale on hold and wait for the market to turn around.
- Pay the difference out of your pocket.
- Opt for a short sale and ask the bank to take the loss. Although you won’t have to bear the costs, short-selling will adversely affect your credit score. So consider this option only as a last resort.
Conclusion
You can sell your house with an ongoing mortgage. But you must consider your existing loan balance and your current home value to decide whether it’s the right time to sell.
You can also employ pricing and staging strategies to attract buyer attention and get the best price. Marketing tactics like virtual open houses, bidding wars, and social media promotion can boost your visibility among buyers.
Houzeo’s Flat-Fee MLS platform can also help showcase your house to a vast buyer audience. Additionally, you can take charge of your selling journey with our convenient platform and save dollars.
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Frequently Asked Questions
1. When do you stop paying a mortgage when selling a house?
You stop paying the mortgage once the deal is complete and you use the proceeds to close your outstanding mortgage. At this point, you can consider your debt settled.
2. Can you transfer a mortgage to another person?
Yes, you can transfer a mortgage to another person provided it's an assumable mortgage. In such a case, the original borrower can transfer their loan to another individual.
3. How soon can you sell a house you just bought?
You can sell a house immediately after you buy it. But you won’t make any profit on the sale. In fact, if you sell the house before two years of residency, you will have to pay capital gains taxes.
4. Can I sell my house if I'm on a fixed-rate mortgage?
Yes, you can sell your house on a fixed-rate mortgage. But most fixed-rate mortgages come with early repayment costs that you'll have to bear.
