Peggy L CarltonIf you’re thinking about selling your house but still owe money on your mortgage, you’re not alone. Many homeowners are in the same situation. Life changes, maybe you’re relocating for work, upsizing, downsizing, or simply want a fresh start. The good news? You can sell a home that still has a mortgage balance. It just takes some planning, smart timing, and a little help from professionals.
Let’s break it all down in simple terms so you know exactly what to expect.
You Don’t Need to Be Mortgage-Free to Sell
Contrary to what some might think, having a mortgage doesn’t block you from selling your home. It’s common. Most homes sold in the U.S. and other markets still have an outstanding loan balance.
When you sell, the money from the buyer goes to pay off your mortgage first. Whatever is left after closing costs and agent fees is yours to keep. If your home sells for more than you owe, great! You get the difference in cash.
If you’re unsure of your remaining loan balance, contact your lender and ask for a payoff amount. This figure includes your principal, plus any interest or fees due at the time of the sale.
What Happens at Closing?
The closing table is where it all comes together. Your mortgage gets paid off directly from the sale proceeds. The title company or attorney handling the transaction will send the payoff amount to your lender. Once that’s settled, they’ll release the lien, and the buyer officially takes over the home.
If there’s equity left over after paying off the mortgage and costs, it will be wired to your account. If not, and you owe more than the sale brings in, you could be looking at a short sale situation (more on that soon).
Watch Out for Negative Equity
Negative equity, also known as being underwater, happens when your home is worth less than your mortgage balance. This is more common when home values dip or if you bought at the market peak.
Let’s say you owe $280,000, but your home’s market value is $250,000. If you try to sell, you’ll still owe the difference unless your lender agrees to a short sale.
A short sale is when the lender accepts less than what’s owed to allow the sale to go through. This can protect you from foreclosure, but it’s a longer, more complex process. Your credit score can take a hit, and you’ll need lender approval before listing the house.
Pricing Smart Is Key
When selling with an active mortgage, setting the right price is important. You want to cover the mortgage balance, pay the agent and closing fees, and ideally walk away with some profit.
A licensed real estate agent can help you run a comparative market analysis (CMA) to determine a competitive price based on similar homes in your area. Keep in mind the buyer’s appraiser will also review the home value, so pricing way too high can backfire.
Getting the Highest Offer can help you stay above water and cover all your obligations. Especially in a seller’s market, having multiple interested buyers can give you more leverage.
Can You Sell Without Equity?
Yes, but it’s complicated. If you don’t have enough equity and can’t bring cash to closing, you’ll need to talk to your lender about options.
Here’s what may happen:
- Short Sale: As mentioned, the lender agrees to let you sell for less than what’s owed.
- Mortgage Assumption: Rare, but the buyer might assume your mortgage if allowed by your lender.
- Out-of-Pocket Payment: You can bring money to cover the gap if you’re financially able.
In any of these scenarios, working with a real estate attorney or experienced agent is essential. They’ll help you handle the paperwork, negotiations, and lender communication.
Consider the Timing of Your Sale
Sometimes the best move is to wait. If your home’s value is increasing and you’re not in a rush, consider holding off for a few months to build equity.
You can also look into refinancing before selling. If you’re on a high-interest mortgage, refinancing could lower your monthly payments, giving you breathing room while waiting for a better selling window.
Seasonal demand matters too. Homes generally sell faster and for more money in spring and early summer. Timing your sale can mean the difference between breaking even and walking away with extra cash.
Prepare for Additional Costs
Selling isn’t free even if you’re still paying a mortgage. Here’s what you should factor in:
- Real estate agent commission (usually 5–6%)
- Closing costs (1–3%)
- Title, escrow, and attorney fees
- Repairs or improvements
- Moving expenses
If your equity is thin, you’ll want to calculate these early. A simple net sheet (your agent can provide one) can help you estimate your potential earnings after costs.
Talk to Your Lender First
Before putting up that For Sale sign, it’s smart to contact your lender. Ask for your payoff statement and let them know you’re considering selling. They may offer advice or walk you through any penalties, fees, or approval steps involved if you’re behind on payments.
If you’re struggling to make mortgage payments, be transparent. Some lenders may offer hardship options or guide you toward a loan modification, short sale, or other relief programs.
Don’t Go It Alone
Selling a home with a mortgage can be smooth or stressful. It depends on your situation, timing, and team. That’s why it’s worth working with experienced professionals: a real estate agent, a title company, and sometimes even a financial advisor.
They’ll help you stay compliant, price correctly, and make sure nothing gets missed. You’ll also avoid common pitfalls like low appraisals, delayed closings, or unexpected costs.
In most cases, selling with an outstanding mortgage is just another day in the real estate world. With the right plan and people by your side, you can move forward confidently.
