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Can I Sell My House If I Have a Mortgage?

Purchasing your dream home is a big financial decision. Most people cannot afford to pay for a property upfront, which is why many people opt for a mortgage.


However, a lot of homeowners sell their homes before the final payment. It can be because they find a better real estate opportunity or because they are in need of a large amount of cash. Whatever the reason may be, the bottom line is that selling a home before paying off the mortgage is quite a common practice.


With that said, if you are new to the world of selling mortgaged homes, things might get a little bit confusing for you. If you owe money to your lender, the sale process might be a little complex and will require some serious prior planning.


Most sellers start by getting a payoff quote from the lender and move to contact a matching service that can help them find a great real estate agent.


If selling your home through this traditional way seems too lengthy and complex for you, selling it to an investor can be the easy and fast way out.


Selling a home

So if you find yourself in a situation like this, it is natural to have questions like "when should I sell?" Here's a blog to answer all your questions about selling a mortgaged house.


Can you sell a house with a mortgage?

Yes! You can actually sell a house before paying off your mortgage debt. As mentioned earlier, the practice is pretty common.


As long as you are on good terms with your mortgage lender and have kept your house in a good condition, selling your home before the mortgage has been paid off is actually possible.


In a perfect world scenario, as you sell your mortgaged home, the money you get from it pays off the remaining mortgage balance and any closing costs that may come up. The rest of the money is the profit that you can use to buy a new house and land a new mortgage.

But what happens when the mortgages are more than the price of the homes being sold? Well, things get quite complicated.


What happens to the mortgage when the house is sold?

Ideally, when selling your home, you have enough equity to cover your mortgage balance and closing costs while the remaining amount becomes your profit. In fact, the buyer's funds the first pay for your mortgage and closing, and then the rest is paid to you later.

Things can get complicated when you sell your home at an early stage as you may not have accumulated enough equity.


So, what is all this talk about equity? Let's find out here.


What is Equity?

Planning a home sale

Equity is the financial stake of your home and property. The more the equity, the more profit you are at. It is the cash value you get after paying off your debt and covering the sale-related expenses. While selling a house with a mortgage, the trick is to find and maintain a balance for the equity.


However, if you have taken a home equity line of credit or HELOC, a home equity loan, or unpaid liens on the property, you will have a hard time calculating your equity.

There are two types of home equities that make up your entire equity. Those are:


Home investment equity

When you make financial investments in your home, you gain home investment equity. The equity is accumulated over the years and your home's sale price increases. The investments can be;

  • the original down payment

  • the monthly mortgage principal payments that you make

  • the full cost of upgradations and renovations in the house done by you

Earned equity

Earned equity cannot be realized before the selling process. It is the additional profit the seller might get due to improved market conditions. These include;

  • gained equity because of the elevated value of houses in the local market

  • additional return of investment due to improving and upgrading the home with renovations

Don't have enough equity? This is what happens next

In some cases, your house might not have enough equity to pay the mortgage and cover the selling expenses. If the property is worth less than the mortgage on it, the equity goes negative. Negative equity is commonly caused because of a falling property price due to a down market, bad condition of the house, or because the house is relatively new.

If you have negative equity or also known as an underwater mortgage, selling your home might be a bit difficult.


Can you sell a house with an underwater mortgage?

In case your house needs repairing or its value has decreased because of a fluctuation on the market, the principal on your house's value will become less than the mortgage amount. In this case, you will find yourself trying to sell a house with an underwater mortgage. This can make the selling process complicated. But, fortunately, it is actually possible to sell a house with an underwater mortgage. There are two ways to do so;


Short sale

A short sale, despite its name, is a complicated and lengthy option to sell a house with an underwater mortgage. In a short sale, the mortgage lender waivers off some of the home loan amount. The lender is more involved in the home sale and they must sign off any offer that helps pay the mortgage amount. Shorts sales include a lot of paperwork and thus if you are looking for a faster and less complicated option, you may want to explore the alternative.


Selling to a real estate investor

Selling to a real estate investor

Want to sell your house without paying off the mortgage, too much paperwork, or hiring a good agent? The best and the fastest way to do it is by selling your home to a real estate investor. Investors have the experience and knowledge needed to work with a house with a mortgage.


In situations where real estate agents may not want to take your case, investors will still step in and help you sell your old house. Selling your home to investors doesn't even require making repairs to the house as they buy houses as-is. You can make the most out of this option by showing the investor papers of your property taxes and any repairs you have done in the house.


Because of the convenience and the simplicity of the process, most homeowners opt for a sale to an investor over a short sale.


Selling your old home to buy a new home

Many homeowners across America try to sell an old home and buy a new one at the same time. Based on if they sell or buy their house first, the outcomes of the mortgage differ massively.


Selling before buying

If your home sells before a new home buying process, things get much easier as the mortgage on your current home gets paid off and you are also left with sufficient money to make the down payment for the new property. You don't have to worry about two mortgages at once.


Buying before selling

Buying before selling can be more complicated. If you are buying a house closing the sale for your old property, you have to be creative about finding the funds to make the down payment. Some ways are:


Contingent sale

Most sellers do not prefer accepting a contingent offer in a competitive open market but if you can get one approved, you can have the home you want under contract and buy some time to work on the sale of your current home.


Bridge loan

A bridge loan is a temporary housing loan that can make you financially qualified to buy a new house while you wait for the equity from the old home to get freed up. During the waiting period, you have to take care of two mortgage payments and a bridge loan payment every month which might become a burden in case your house doesn't sell quickly through a real estate agent.


HELOC

HELOC can be a short-term way to fund a new home through a line of credit secured by the equity of your current home. However, your scope in this way is pretty limited given that HELOC cannot be applied for if your home is already on the market.


Can you sell a house with a fixed mortgage?

Many sellers are concerned about whether or not they can sell a house that has fixed mortgage payments and the answer is, yes. In fact, a fixed mortgage provides you with a sense of predictability.


The best way to get started while selling a house with a fixed mortgage is to contact your lender to know exactly how much of the payoff amount is pending. You might be concerned about the consequence of leaving a fixed mortgage contract early but a real estate agent will tell you that most lenders only charge 1% to 5% of the outstanding debt amount as early repayment fees.


Can you sell a house with a reverse mortgage?

Selling a home for cash

In a reverse mortgage scenario, where you borrow a mortgage against the equity in your home for a cash offer, selling the house can be a little complicated. But, yes, you can still sell a house with a reverse mortgage with some prior planning.


Your mortgage lender cannot force you to sell your home but you can choose to sell it at any time you want. While making the sale, you need to keep in mind that if your reverse mortgage has come to due, you will have to pay a sum of the loan balance, plus interest and fees. But if the value of your house has appreciated, you can easily sell it off and keep the remaining balance.


Conclusion

It is possible to sell a home with any kind of mortgage on it, be it a regular one, a reverse mortgage, or a fixed mortgage. However, it is important to make sure to plan your moves before a traditional sale. But if you want to do things in a convenient way, an investment company like HomeFront can help you at every stage of your real estate transaction. Sell your house to investors and you will never have to worry about a thing, be it your mortgage payoff amount, finding home buyers, or the complex paperwork that takes a ton of time.

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