Selling A House With A Mortgage: A Guide

Most people don’t have the money in their savings account to buy a home without some sort of financing, so it’s very common to have a home loan, but can you sell a house with a mortgage, and if so, how does the process work?

Yes. You can sell your house even if you have an existing mortgage. When you sell your home, you can use the proceeds from the sale to pay off your mortgage balance and any closing costs.

Selling a house while paying off your remaining mortgage is incredibly common. Here’s how you do it.

Find Your Remaining Loan Balance

The first step is to determine your remaining loan balance. This will help to give you an early estimate of how much you can expect to have to give your mortgage company in order to pay off your loan when you sell your house. At a bare minimum, you want to price your home so that you can pay off your mortgage.

The lower this number relative to your original loan balance, the more existing equity you have in your home. Home equity is the difference between your home value and what you have left to pay off on your home. The more equity you have in your home, the more you are likely to make in a sale after paying off your mortgage, so it’s important to know what this number is.

Rocket Mortgage^® clients who have been in their home for a while can also check the amount of equity in their home by logging into their Rocket Account.¹ There’s a home equity widget.

Determine The Right Time To Sell

The right time to sell is a complicated question because everyone’s situation is different. Here are several factors to consider:

• Why are you moving? If you have to relocate for career reasons, you might want to move faster than if you’re downsizing or looking to take advantage of a strong housing market.
• What kind of market is your home entering? There’s a big difference between a buyer’s vs. seller’s market. If competition in your area is high and there are fewer homes available for buyers, you can set your home price higher than if it was the other way around. 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 many 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. There’s something to be said for not wanting to ever make two mortgage payments at once, but you also may not want to sell only to move into an apartment and pay for storage.

Set A Fair Listing Price

Everyone wants to get as much money for the home as they possibly can. However, there are advantages to setting a fair asking price. Here are couple of them:

• You have a better chance of getting multiple bids. If people think there’s good value at the price point you’ve listed, you’re more likely to get several bidders on your home. In this way, you may actually end up generating a higher sale because it creates more competition between the bidders.
• There’s less chance of fallout. Most people don’t have the ability to make an all-cash offer for a home. Getting a mortgage requires an appraisal, which places a value on your home in relation to comparable properties in your area. If you’re listing price is fair and based on reasonable values, the likelihood of the appraisal coming in low and scuttling the transaction isn’t as high.

A real estate agent doing a comparative market analysis should help you decide on a fair listing price.

Prepare Your House To Sell And Stage

When you’re selling a home, you want to compare as if you were trying to win the apple pie contest at the state fair. Just as you would only use the best ingredients in your pie, you want to make sure you’re showing your home in the best possible light.

We recommend all sellers always do a few basic things:

• Do some deep cleaning and de-clutter. Especially in the evermore health-conscious world we live in, when you have the potential for many people to be going through your home, deep cleaning is never going to hurt. You also want to de-clutter. This will make it easier for potential buyers, appraisers and home inspectors to walk through your home.
• Paint a picture without personalization. You’ll want to remove personal touches from your home, but you also want to give someone the impression that they could see themselves living in this space. You should leave ample walkways, but at the same time, consider leaving furniture in the space.
• Even little renovations can matter. Replace knobs on doors and cabinets. Put a fresh coat of neutral paint on the walls. Plant some flowers in the garden bed. While granite countertops are nice, not everyone has the budget to redo the main bathroom before they sell, but you can do lots of small things to spruce up your home.

Cover Closing Costs

Although closing costs are typically thought of as being paid by the buyer, there are certain costs that have traditionally been paid by sellers. Here are a few examples of possible expenses:

• Real estate agent commission: Split between the buyer’s agent and your listing agent, this is usually 6% of the final purchase price of the property.
• Owner’s title policy: This policy is 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 the seller as a show of good faith.
• Escrow account: The escrow account that many are familiar with is the one that buyers usually have for things like property taxes and homeowners insurance. However, money given prior to the sale is also held in an escrow account for the protection of both the buyer and seller until the transaction closes. This cost is typically split between the parties.
• 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 homeowners association, these dues will also be prorated.

As we’ve alluded to previously, it’s a real seller’s market in many areas of the country, so you may find that you have more leverage in negotiations. Speak with your real estate agent about what you can expect to pay in your area.

Sell The Home And Pay Off The Remaining Mortgage

At the same time you sell your home, you use the proceeds to pay off the existing mortgage. When you do this, it’s important to get a payoff quote from your lender. You can’t just send in a check for the loan balance because you owe interest up until the date of the move.

When you get your payoff quote, it will have an expiration date. As long as you make your payment before that date, the amount quoted is what you owe. Otherwise, a new quote will need to be generated. If you make your payoff prior to the expiration, you’re refunded however much interest you don’t have to pay as a result of selling earlier.

It’s important to note that in some instances you may also have to use your sale proceeds to pay off other liens, such as those for back taxes or contractor work.

Keep The Remaining Funds From The Sale

Once you sell your home and pay off the mortgage and any other outstanding liens, whatever’s left over is your profit. You can keep it in the bank. On the other hand, what people commonly do is use it as the down payment on their next home. Having a larger down payment can help avoid paying for private mortgage insurance.

Having negative equity means you owe more on your home than it's worth. It's completely possible to sell your home this way, but you need to be aware that you will have to pay off the difference. For that reason, it's usually preferable to hold onto your home until the value rises sufficiently that you can pay off your mortgage.

If you’re struggling to make your payments and need to move on, one option is a short sale. This is where a lender agrees to take less than you owe on the mortgage. The sale has to be approved by the lender. This does hurt your credit and impact your future mortgage options for a period of time, but it’s less painful from a financial perspective than a foreclosure.

If you’re struggling with making your payments, you may have options. Fill out our Application for Success.

You can certainly sell a house with an existing mortgage. It’s important to consider your existing balance and whether it’s the right time for you to sell. Your real estate agent can help you set a fair listing price and give you tips on preparing to sell. You’ll use the proceeds from your sale to pay off your existing mortgage and any other liens. What’s left is yours.

Before you move forward with your sale, here’s a closer look at the costs of selling a house.

¹ Rocket 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.