Sell with a Mortgage

Yes – in fact, most people are still paying off their home loan when they sell. The situation is so common that mortgage companies have streamlined and straightforward processes in place to facilitate the process. Simply put, you really don’t need to worry about it because the other parties (lender, title company, etc.) that facilitate the sale will do the heavy lifting to ensure they get paid in full and you receive your equity.

Maximizing your equity is a separate matter – and it’s what 72SOLD is best at. Our highly effective process helps ensure our clients maximize their home sale price and walk away with extra cash for their next home purchase.

The Process of Selling a House With a Mortgage

When you sell a house with an outstanding mortgage, the proceeds from the sale go toward paying off the mortgage lender first. This process is managed by your settlement agent, depending on your state’s regulations. Here’s a breakdown of the typical steps:

1. Listing and Selling Your Home
   
   Initially, your real estate agent will take the necessary steps to list your home for sale. Once you receive an acceptable offer from a homebuyer, you'll move toward closing.
   
   
2. Handling the Transaction
   
   During closing, the buyer’s funds (whether it's cash or a loan from their mortgage lender) are used to pay off your mortgage. This is often facilitated by a title company to ensure all parties are paid accordingly. Home sellers typically don’t need to worry about the nitty-gritty details of this process.
   
   
3. Paying Off the Mortgage
   
   Your mortgage lender will provide a payoff quote that is valid through a specific date. This quote includes the principal balance you owe on the mortgage, plus any interest accrued up to the payoff date and any fees or penalties applicable.
   
   
4. Receiving Your Equity
   
   After your mortgage and any associated selling costs (like commissions and closing costs) are paid off from the sale proceeds, any remaining money is your equity and will be disbursed to you.
   
   
5. Understanding Equity
   
   Equity is the portion of the home that you truly "own." It's the current market value of your home minus any liens against it – like a mortgage. As you pay down your mortgage and as the home’s value increases, your equity grows. When you sell, equity translates into cash after the mortgage balance is paid off.

Example of the Calculation

• Home Sale Price: $300,000
• Remaining Mortgage: $200,000
• Selling Costs (including commissions): $20,000
• Homeowner's Equity: $80,000

In this scenario, you'd walk away with $80,000 before any taxes or other fees that may apply.

Factors That Affect Your Equity

Market Value Changes

If the market value of your home increases due to property market trends or improvements you’ve made to the property, your equity will increase.

It’s important to recognize that market value is not some monolithic, immovable figure that dictates the sale price. Ultimately, your equity in a home sale will be based on what someone is willing to pay for your home.

In this regard, your choice of real estate agent can be the difference between getting subpar market value offers or purchase offers that are thousands or tens of thousands of dollars higher than those received by comparable home sellers in your area.

Mortgage Payments

With every mortgage payment you make, you're paying down the principal and increasing your equity.

Second Mortgages or Liens

Any additional liens or second mortgages are also subtracted from your sale’s proceeds, which could reduce your equity.

What If You’re Underwater?

Selling a house with a mortgage is straightforward when you have more equity than debt. The situation is different if a homeowner is underwater, meaning they owe more on their mortgage than what the home is worth. If in the above example the home’s appraised value was only $190,000 and the remaining mortgage was $200,000, the homeowner would be considered underwater.

In that case, the homeowner would need to pay the remaining loan principal and interest out of their own pocket. Alternatively, if you can continue making your loan payments and don’t have an urgent need to move, it may be best to hold off on selling your home until the local real estate market recovers.

Paying the remainder of the loan balance or filing for bankruptcy are not necessarily the only options for underwater homeowners who need to sell. There are scenarios in which you may be able to negotiate a short sale of your property.

The Short Sale Process

1. Contact your lender as soon as you anticipate trouble making mortgage payments. Many lenders have departments specifically dedicated to short sales or loan modifications.
2. Draft and submit a “hardship letter” that explains your situation, including why you can’t continue making full and on-time mortgage payments. Your lender will want documentation to verify your claims, including pay stubs, bank statements and comparative market analysis of your home’s value.
3. If a lender is willing to work with the homeowner, they will typically require the home to be listed by a local real estate agent as soon as possible. Lenders generally require an agent to be involved to provide assurance that the home will be sold for the maximum price at the current market valuation.
4. Your lender will need to receive and review offers. They get to decide whether the sale price is better than foreclosure.
5. If the lender finds the terms acceptable, they will need to issue a short sale approval letter so the sale can move forward.

This can be an intensive process, but the short sale route is often preferable to bankruptcy for most homeowners who can’t continue making mortgage payments.

72SOLD Can Sell Your Home With or Without a Mortgage

It wasn’t long ago when the national median duration of homeownership was just 13.3 years, meaning the majority of homeowners with a 15 or 30-year mortgage were selling before their homes were paid off. 

If you’re like most home sellers, you don’t want to settle for the “average” sale price in your area. That’s where 72SOLD comes in. We have studies to back up our assertion that we regularly beat average real estate agents on home sales prices.

Find out how our system can help maximize the offers you receive.