📋 What You'll Learn
How Selling a House with a Mortgage Works
Here's the simple version: when you sell your house, the buyer pays the agreed price. That money goes to the title company (or escrow company), which then:
- Pays off your existing mortgage (including any interest owed)
- Pays the real estate agents (typically 5-6% of sale price)
- Pays closing costs (title insurance, transfer taxes, etc.)
- Gives you the rest (your equity/profit)
You don't have to pay off your mortgage before selling. You don't have to bring cash to closing (unless you're underwater). The title company handles everything.
💰 Example: The Money Flow
Sale Price: $450,000
Mortgage Payoff: -$280,000
Agent Commissions (5.5%): -$24,750
Closing Costs: -$8,000
Your Check: $137,250
Step-by-Step: Selling Your Home with a Mortgage
Get Your Payoff Amount
Contact your mortgage servicer and request a "payoff statement" or "payoff quote." This shows exactly how much you owe, including:
- • Principal balance
- • Accrued interest through expected closing date
- • Any fees or prepayment penalties
Note: Payoff amounts are only valid for a specific date range (usually 10-30 days). You may need to request a new one if closing is delayed.
Determine Your Home's Value
Get a realistic estimate of what your home will sell for. Options include:
- • Comparative Market Analysis (CMA): Free from real estate agents
- • Online Estimates: Zillow, Redfin, Realtor.com (use as starting point only)
- • Professional Appraisal: $300-$500, most accurate
Calculate Your Equity
Your equity = Home Value - Mortgage Payoff - Selling Costs
Estimated Sale Price: $____________
Minus Mortgage Payoff: $____________
Minus Agent Commission (~5.5%): $____________
Minus Closing Costs (~2-3%): $____________
= Your Estimated Proceeds: $____________
List and Sell Your Home
Work with a real estate agent to list your home, negotiate offers, and navigate the sale process. The fact that you have a mortgage doesn't change anything about how you market or sell the home.
Close the Sale
At closing, the title company will:
- • Collect funds from the buyer (or their lender)
- • Wire your mortgage payoff to your lender
- • Pay all closing costs and commissions
- • Wire or cut a check for your proceeds
- • Record the deed transfer with the county
Your lender will release the lien on the property, and the buyer gets a clear title.
Receive Your Proceeds
You'll typically receive your money via wire transfer within 1-3 business days after closing. Some title companies offer same-day wire or a check at closing.
How to Calculate Your Home Equity
Your equity is the difference between what your home is worth and what you owe. Here's how to calculate it accurately:
📊 Equity Calculator
Current Home Value
Use recent comparable sales or get an appraisal
$_______
Mortgage Balance
Check your latest statement or request payoff
- $_______
Your Equity
= $_______
Equity Scenarios:
✅ Positive Equity
Home worth more than you owe. You'll receive money at closing after paying off the mortgage and costs.
⚠️ Break-Even
Home value roughly equals what you owe plus selling costs. You'll walk away with little to nothing.
❌ Underwater
You owe more than the home is worth. You'll need to bring cash to closing or explore alternatives (short sale, etc.).
Complete Breakdown of Selling Costs
When calculating your proceeds, don't forget these costs that come out of your sale:
| Cost | Typical Amount | Notes |
|---|---|---|
| Real Estate Agent Commission | 5-6% of sale price | Split between buyer's and seller's agents |
| Title Insurance (Owner's Policy) | $1,000-$3,000 | Varies by state; sometimes buyer pays |
| Transfer Taxes | 0-2% of sale price | Varies widely by state/county |
| Escrow/Closing Fees | $500-$2,000 | Title company or attorney fees |
| Prorated Property Taxes | Varies | Your share through closing date |
| HOA Fees/Transfer | $0-$500 | If applicable |
| Repairs/Concessions | Negotiable | Based on inspection/negotiation |
| TOTAL SELLING COSTS | 8-10% of sale price | Plan for this range |
💡 Pro Tip: Negotiate Agent Commissions
Agent commissions are negotiable. In a hot market, some agents will accept 4-5% total commission. You can also explore flat-fee or discount brokerages.
What If You're Underwater on Your Mortgage?
If you owe more than your home is worth (negative equity), you have several options:
Option 1: Bring Cash to Closing
If you're only slightly underwater, you can pay the difference out of pocket. For example, if you owe $305,000 but can only sell for $300,000, you'd bring $5,000 plus closing costs to closing.
Option 2: Short Sale
Your lender agrees to accept less than what you owe. This requires lender approval and typically takes longer than a regular sale. It will affect your credit, but less severely than foreclosure.
Learn more about short sales →Option 3: Wait and Build Equity
If you can afford to stay, continue making payments. Home values generally appreciate over time, and each payment reduces your principal. You may be above water within a few years.
Option 4: Rent It Out
If rental income covers your mortgage, you can wait for the market to recover while someone else pays your mortgage. Check your loan terms first—some mortgages have owner-occupancy requirements.
⚠️ Don't Just Walk Away
"Strategic default" (walking away from an underwater mortgage) has serious consequences: foreclosure on your credit report, potential deficiency judgment, and tax implications. Explore all options before considering this path.
Special Situations
🏠 Selling to Buy Another Home
If you're selling to buy, timing is crucial. Options include:
- Sell First, Then Buy: Safest financially, but you may need temporary housing
- Buy First, Then Sell: Requires qualifying for two mortgages or a bridge loan
- Contingent Offer: Make your purchase contingent on selling your current home
- Home Sale Contingency: Negotiate a longer closing to align both transactions
💔 Selling During Divorce
Divorce adds complexity to selling with a mortgage:
- Both spouses typically need to sign the listing agreement and sale documents
- Proceeds are usually split according to the divorce agreement
- If one spouse wants to keep the home, they'll need to refinance into their name only
- Consider working with a real estate attorney to protect your interests
📜 Selling an Inherited Home with a Mortgage
If you inherit a home with a mortgage:
- The mortgage doesn't automatically transfer to you—but neither does the obligation
- You can sell the home and pay off the mortgage from proceeds
- If you want to keep it, you may be able to assume the loan or refinance
- Federal law (Garn-St. Germain Act) protects heirs from due-on-sale clauses
⏰ Selling Soon After Buying
Selling within 1-2 years of buying can be costly:
- You've paid mostly interest, not principal (little equity built)
- Selling costs (8-10%) may exceed any appreciation
- You may owe capital gains tax if you haven't lived there 2 of the last 5 years
- Some loans have prepayment penalties (rare, but check your terms)
🏠 Ready to Sell Your Home?
Get connected with top-rated real estate agents in your area who can help you navigate the selling process and maximize your proceeds.
Find Top Agents Near You →❓ Frequently Asked Questions
Do I have to pay off my mortgage before selling?
No. The mortgage is paid off at closing from the sale proceeds. The title company handles this automatically. You don't need to pay it off in advance.
What if I owe more than my house is worth?
You'll either need to bring cash to closing to cover the difference, negotiate a short sale with your lender, or wait until you have positive equity. A short sale requires lender approval and will affect your credit.
How long does it take to get my money after selling?
Typically 1-3 business days after closing if you choose wire transfer. Some title companies can provide a check at closing or same-day wire for an additional fee.
Can I sell my house if I'm behind on payments?
Yes, as long as you haven't gone into foreclosure. In fact, selling before foreclosure is usually much better for your credit and finances. The sale proceeds will pay off your arrears along with the principal balance.
What happens to my escrow account when I sell?
Any money in your escrow account (for property taxes and insurance) will be refunded to you after the sale closes. This typically takes 2-4 weeks and comes as a separate check from your mortgage servicer.