How to sell a house with a mortgage

If you find yourself in a situation where you need to sell a house before your current home is paid off in full, it might feel overwhelming.

Selling a house with a mortgage is possible, and understanding the process can help simplify things. We'll walk you through the steps to demystify and make things easier. Plus, we'll examine the costs and how equity plays a role.

Can you sell a house with a mortgage?

You can sell your house even if you have an existing mortgage. When you do finalize the sale of your home, you can use the proceeds from the sale to pay off your mortgage balance and any other costs that come with selling your house.

How to sell a home with a mortgage

The good news is selling a home with a mortgage is common. Here are the steps you can expect to take:

1. Find out your remaining loan balance

First, you'll want to figure out the remaining loan balance. This determines how much you'll need to pay to the lender after the sale.

Another factor that comes into play when you sell a house that still has a mortgage is your home equity. This is the amount of home that you own. It's the difference between your home's value and the loan amount that remains, and as you pay down your mortgage and the home value appreciates, your home equity also increases. You may be able to estimate your home’s value before selling it, but you will only be able to know the true market value of your home once you put it on the market and see what a buyer is willing to pay for it.

 More equity can mean a potentially larger profit from the sale. If you're a Rocket Mortgage® client, you can check the equity in your Rocket Account.¹

2. Determine the right time to sell

While the right time to sell is different for everyone and there's no one-size-fits-all answer, there are a few ways to help you decide.

• Why are you moving? If you have to move for a new job, you may need to relocate faster versus just downsizing or capitalizing on a strong housing market. It’s good to keep your timeline in mind.
• What kind of market is your home entering? There’s a big difference between a buyer’s market and a seller’s market. Imagine your area has high competition plus fewer homes available for buyers. You can set your home price higher than if it were the opposite. It’s helpful to have your real estate agent do a comparative market analysis.
• Are you confident you can find another house? If you’re looking for another house, you may find that it’s tougher in certain markets than it has been in the past. The same conditions that make it a good time for you to sell can make it a difficult time to buy a house.

3. Set a fair listing price

While it makes sense to want to get as much as possible for your home, setting a fair price has several advantages:

• You have a better chance of getting multiple bids. If people think there’s good value for the listed home price, you’re more likely to get several bidders on your home. In this way, you may end up with a higher sale because it could create more competition between the bidders.
• It can help avoid issues with the appraisal. The buyer’s lender will order a new appraisal of your home before closing. If your listing price matches recent comparable sales, it’s more likely the lender will approve the buyer’s full loan amount. To reduce the risk of a low appraisal, work with a real estate agent who can review comps and update your home’s estimated value. That way, they can help you determine a fair value.

4. Prepare your house to sell and stage

Now, you can begin to set the preparations in place to sell your home. This includes doing the work to clean your home and make improvements to stage your place before it gets listed.

• Deep clean and declutter: Deep cleaning is a good idea before busy walkthroughs. You’ll also want to declutter. This will not only make you look like a serious seller, but it also leaves a good impression on potential buyers.
• Remove personal items: You’ll want to remove most personal touches from your home. Yet, leave some to help potential buyers visualize living in this space. You should leave ample walkways, but at the same time, consider leaving furniture in the space.
• Make small improvements: Small improvements and design updates around the home can make a big difference. Replace knobs, put a fresh coat of neutral paint on the walls, and even enhance the curb appeal by planting some flowers out front.

5. Cover closing costs

Depending on your personal situation, you should budget to cover some of the closing costs when you sell your home.

• Real estate agent commission: Split between the buyer’s agent and your listing agent, this is usually 5% to 6% of the final purchase price of the property.
• Owner’s title insurance policy: This policy provides protection for the buyer in case someone comes along in the future with a valid claim to your property. This is often paid for by you as a show of good faith.
• Escrow account: You may associate an escrow account with property taxes and homeowners insurance. However, funds related to the sale are also held in an escrow account for the protection of both the buyer and the seller until the transaction closes. Fees for the escrow account are generally split between the buyer and seller, as negotiated.
• Prorated taxes: You’ll pay real estate taxes for the portion of the month in which you live in the home prior to your sale.
• Homeowners association dues: If you live in a home that is a part of a homeowners association (HOA), these dues are also prorated.

6. Sell the home and pay off the remaining mortgage

When you're a homeowner, you usually can use the sale proceeds to pay off your remaining mortgage balance. You can request a payoff quote from the lender.

This usually includes interest that has accrued up to the payoff date. It might also include other fees and liens such as unpaid taxes that you've been charged with and haven't yet paid. Paying off your home loan early means you might be subject to a prepayment penalty fee, depending on the terms of your loan.

Note that the payoff quote has an expiration date, and any unused interest is refunded if the loan is paid off early.

7. Keep the remaining funds from the sale

After paying off the mortgage and any other debts tied to your home, the remaining money becomes your profit. You can use those funds toward saving, paying off other debt, or using it as a down payment on a new home.

If you plan on using the profit on the sale of the home to purchase a new one, making a larger down payment can help you steer clear of having to get private mortgage insurance (PMI).

Can you sell a home with negative equity?

When there's negative equity in your home, you'll owe more on your mortgage than your home is currently worth.

While it's possible to sell in this scenario, you'll need to cover the difference between the sale price and the mortgage balance. It’s often better to wait for the market to improve. That way you can build more equity before selling.

Short sales and foreclosures

If you’re facing financial hardship and need to sell your home quickly for less than what’s owed on the mortgage, you may need to consider a short sale. With your lender’s approval, this process may go forward and can be a way to avoid foreclosure, which is very damaging to a credit history.

Foreclosure occurs when you fall behind on your mortgage, and a lender typically repossesses your home. The foreclosure process can vary by state.

Though a short sale may not be as severe as a foreclosure there are still downsides: it can damage credit, and you'll need to go through a waiting period before you can qualify for a new mortgage, which can take anywhere from two to seven years.

If you need help with your mortgage payment, you do have options. Some forms of mortgage relief include refinancing, reinstatement, repayment plans, forbearance, loan modification, or payment deferral.² You can talk to a Rocket Mortgage Home Loan Expert for guidance.

Can you qualify for a mortgage before selling your house?

It’s possible to qualify for a new mortgage while still paying off your current one, but it depends on the particulars of your financial situation.

For one, lenders will evaluate your debt-to-income ratio (DTI) and credit score to figure out if you are in a financially secure place to take on a second mortgage. A higher DTI from carrying two mortgages combined could make it harder to get approved.

If a lender is not able to approve you to carry two mortgages at once, the sale of your current home may need to be aligned to the purchase of your new home so that the cash from the home sale can be used for the new home purchase.

A low DTI and strong credit may help boost your chances of qualifying. While it depends on the type of home loan and lender, you might be able to get approved for a new mortgage before selling your house with a credit score of 680 or higher and a debt-to-income (DTI) ratio of up to 45%. 

FAQ

Here are some common questions about selling a house with a mortgage.

What happens if you sell your house before you pay off the mortgage?

Should you find yourself in a situation where you sell your house before you pay off the mortgage entirely, you can take the sale proceeds to pay off your mortgage and other costs related to the sale of the home. Any money left over after paying these costs would belong to you.

Can you make money on a house you still owe on?

Yes, if you sell your house for more money than you owe. The leftover funds after your expenses are what you earn as profit.

How soon can you sell your house after buying it?

While you can technically sell your house at any time after buying it, it's generally recommended to wait at least five years to reap the financial and tax benefits. Staying at least two years can help you qualify for the capital gains exemption tax. Plus, it'll give you time for your equity to grow in your home.

If you sell your house and pay off your mortgage early, you might be subject to a prepayment penalty, depending on the terms of your loan.

The bottom line: It’s possible to sell a home with a mortgage

Selling a house with an existing mortgage is possible, but you'll want to factor in your existing balance on your mortgage, your unique financial situation, and market conditions to determine whether it's the right time for you to sell.

Checking how much equity you have in the home and working with a real estate agent can help walk you through the process and pin down a fair listing price.

If you’d like to find out what you may qualify for, you can reach out to Rocket Mortgage^® and start an application today or call (833) 326-6018.

¹Rocket Account is your account created in connection with Rocket Mortgage, Rocket Loans or Rocket Homes Real Estate LLC. Rocket Mortgage, Rocket Loans and Rocket Homes Real Estate LLC are separate operating subsidiaries of Rocket Companies, Inc. Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation and applicable legal and regulatory requirements.

² Refinancing may increase finance charges over the life of the loan.

^{This article is for informational purposes only and is not intended to provide financial, investment, or tax advice. You should consult a qualified financial or tax professional before making decisions regarding your retirement funds or mortgage.}