Can You Sell a House If You Still Owe on the Mortgage? Yes, Here's How

Understanding the Mortgage Payoff Process

Selling a home while still owing money on your mortgage is not only possible but extremely common. In fact, the majority of home sales involve properties with outstanding mortgages. The key to a successful sale lies in understanding how the payoff process works and ensuring you have enough equity to cover the balance and associated costs.

When you sell a home with a mortgage, the sale proceeds are used to pay off your existing loan at closing. The title company or closing attorney coordinates with your lender to ensure the mortgage is satisfied and the lien is released before transferring ownership to the buyer. Any remaining proceeds after paying off the mortgage, closing costs, and other fees belong to you.

The term "equity rich" refers to homeowners whose outstanding loan balance is less than half their home's value. According to recent data from Cotality, nearly half of all mortgaged residences fall into this category, giving these sellers substantial financial flexibility when it comes time to sell.

What Is a Mortgage Payoff Statement?

A payoff statement is a document from your lender that details exactly how much you need to pay to satisfy your mortgage on a specific date. This amount differs from your regular monthly statement balance because it includes several additional components that determine your actual payoff obligation.

The payoff amount typically includes your remaining principal balance, accrued interest through the payoff date (calculated daily), any outstanding fees or late charges, and potentially prepayment penalties if your loan terms include them. Because interest accrues daily, the payoff amount changes every day until the loan is paid in full.

Calculating Your Home Equity

Before listing your home, understanding your equity position is essential. Home equity represents the difference between your property's current market value and the amount you still owe on your mortgage. This figure determines how much money you can expect to receive from the sale after all obligations are met.

To calculate your equity, start by determining your home's current market value. The most accurate method is to work with a qualified real estate agent who can provide a comparative market analysis based on recent sales of similar properties in your area. Online valuation tools can provide rough estimates, but they often miss nuances that affect your specific property's value.

Next, obtain your current mortgage balance from your lender or your most recent statement. Subtract this balance from your estimated home value to determine your gross equity. Remember that this is a starting point as you will need to account for selling costs to determine your true net proceeds.

The Equity Equation

Net Proceeds Calculator

Use this calculator to estimate how much money you will receive from your home sale after paying off your mortgage and accounting for typical selling expenses. Enter your details below for a personalized breakdown of your expected proceeds.

Timing Your Final Mortgage Payment

One of the most common questions sellers ask is when to stop making mortgage payments before closing. The answer depends on your closing date and your payment due date, but the general rule is to continue making payments until the sale closes.

Financial experts recommend making your final mortgage payment approximately seven days before your scheduled closing date. This approach ensures you remain current on your loan while avoiding potential overpayment. If you do overpay, lenders are required to refund any excess within 30 days of payoff.

Payment Timing Scenarios

If your closing date falls before your next payment due date, you generally can skip the upcoming payment since the payoff amount will include all accrued interest through the closing date. However, if closing is delayed beyond your due date, make the payment to avoid late fees and protect your credit score.

When closing occurs after your due date, making the scheduled payment is typically the safer choice. Any overpayment resulting from this timing will be calculated and refunded after closing. The closing attorney or title company handles these calculations as part of the settlement process.

The Step-by-Step Selling Process

Selling a home with a mortgage follows a structured process that protects both the seller and lender while ensuring a smooth transfer of ownership. Understanding each step helps you prepare and avoid surprises along the way.

What If You Owe More Than Your Home Is Worth?

While most homeowners have substantial equity, approximately 2.1% of mortgaged properties are currently "underwater," meaning the mortgage balance exceeds the home's market value. This situation, known as negative equity, has been increasing gradually since 2024 as home price appreciation has slowed in some markets.

If you find yourself in this position, you have several options to consider. You can bring additional funds to closing to cover the difference between the sale price and your mortgage balance. This approach allows you to sell the property, pay off the loan in full, and move on without damaging your credit.

Another option is a short sale, where your lender agrees to accept less than the full amount owed. Short sales require lender approval and can take longer to complete, but they allow you to sell without coming up with additional cash. The impact on your credit is typically less severe than foreclosure, though you may face tax consequences on the forgiven debt.

Finally, you can choose to wait for values to improve before selling. With the average homeowner sitting on nearly $299,000 in equity nationwide, many markets still offer favorable conditions. However, this strategy depends on your personal circumstances and timeline requirements.

How Top Agents Maximize Your Net Proceeds

When every dollar counts, working with a top-performing real estate agent can significantly impact your bottom line. Data consistently shows that homes sold with professional representation sell for substantially more than those sold without an agent, and the pricing and negotiation expertise of experienced agents often more than offsets their commission.

According to the National Association of Realtors, agent-assisted home sales achieve median prices approximately $65,000 higher than for-sale-by-owner transactions. This price advantage stems from several factors including accurate pricing strategy, professional marketing exposure, skilled negotiation, and access to qualified buyer pools.

A top agent brings market knowledge that helps you price your home correctly from the start. Overpricing leads to extended days on market and eventual price reductions, while underpricing leaves money on the table. Accurate pricing generates competitive interest and often results in stronger offers.

Beyond pricing, experienced agents negotiate on your behalf throughout the transaction. From initial offers through inspection requests and closing credits, skilled negotiators protect your interests and work to maximize your proceeds at every stage. Learn more about how to choose a realtor who will deliver results.

Frequently Asked Questions