Can You Sell A House That Is Not Paid Off?

selling a house that isn't paid off

Can you sell a house that has not been paid off?

Change is a constant in today's world, even in home ownership. The National Association of Realtors 2022 Generational Trends Report reveals that buyers now expect to live in their homes for only 12 years, down from the 15-30-year range of yesteryears. This trend suggests many sellers have outstanding mortgages.

But can you sell a house with a mortgage balance? 

Can you sell your house if you still owe on it? 

The short, and undramatic answer is: yes. This being said, it's more nuisance than just a single-word answer. Let's take the first step and see what you'll be required to do before selling a house with a mortgage. 

First, contact your lender 

As a first step, you need to confirm how much you need to pay off your mortgage. The lenders will be required to provide you with a quote, or payoff amount, but this is only valid for 10-30 days. 

This amount is the total you'll have to pay the lender, and it will be different than what appears on your monthly statement. The payoff amount is worked out with the interest you owe to the day and can include fees you'll be responsible for when closing the mortgage. If you are wondering, they are required to do this by the Consumer Financial Protection Bureau. 

Once you receive this document, you'll want to check to see if there is a prepayment penalty. These (prepayment penalties) aren't common in today's property market and are in place due to the fact that financial institutions rely on interest as their revenue. 

If you're wondering, "Can I sell a house that has not paid off its prepayment penalty?" the answer varies depending on the agreement, but it normally needs to be paid off on top of the outstanding mortgage amount. 

How these penalties are worked out also varies as they can be worked out on the remaining owed balance (at around 2-5%), a percentage of owed interest, or a flat rate. 

Finally, while your mortgage lender cannot prevent you from accepting offers from any potential buyer, they are allowed to ask for a pre-approval or proof of funds. If you're in the process of selling your house fast to House Buyers of America, this shouldn't be an issue. 

Crunching the numbers 

Now that you have an idea of how much you need to pay your lender, you'll need to work out how much you'll be taking out of the sale. Normally, you'd have to go through a real estate agent to give you their comparative market analysis. This will give you an idea of the price to list your house on the market. 

Before you think this is a simple equation, there's still a lot of additional hidden costs to consider. 

Renovations and real estate agent costs

Your real estate agent is bound to take you through some elements around your home that need fixing. These will need to be done before you invite the photographer into your home and open your house to viewings. 

It's also worth mentioning that certain renovations will be required after the home inspections are completed. You can get more details about what to consider before you sell your house.

Then, it comes time to consider your real estate agent's commission of around 5-6%. If you are tight on money, it might be wise to skip these expenses and sell your home without a realtor

Legal fees 

To sell any property, you'll need an attorney, who always has fees attached. They're required to oversee title transfer, and escrow, and to notarize the procedures. You will need to factor these costs in as well. Pricing can vary depending on the state. 

Property tax

With any major source of income, the government will be able to claim tax. This varies depending on the state you reside in and its laws. But the bottom line is, expect to pay. 

So, now that you have a basic list of expenses it's time to pull out the home sale calculator

Begin with your approximate value of the house and subtract;

  • Mortgage payoff
  • Costs for renovations
  • Agent commissions
  • Attorney fees
  • Title
  • Escrow
  • Notary
  • And transfer fees

At the end of this calculation, you'll be able to roughly work out the home sale proceeds. 

This is the best-case scenario, but what happens if you're behind on your payments, or if your home is "underwater"? 


How to sell if your home is "underwater"

The likelihood that your home is worth less than its mortgage, negative equity, or underwater, is low. Those who have taken out a second mortgage to cover expenses and debts are more likely to end up with negative equity in their home. 

While it isn't impossible to sell an underwater home, we'd strongly recommend you hold onto the property, if you can, until the market improves. Or, rent out the home to recover some equity. But, for some, the option of sitting on a property isn't always possible. 

Your first option is to pay out of pocket in cash at closing. This is extremely unlikely to be a choice most people would take, but if you can access this type of capital and can't wait, it's an option. 

The second is to go to your lender and request a short sale. A short sale is when you go to your lender and convince them to reduce the amount you owe. Once again, this is an extreme situation and will only be granted if there is a fear you'll foreclose on your home. 

Making this situation worse is the fact that taking on a short sale means you'll need to sell your house fast for cash

These are rare occasions, but you should always know your options. 

But let's talk about what happens when you get closer to closing the deal. 


You need to pay your mortgage until closing

As the owner of the mortgage on your home, you'll still need to make the installment payments until the sale closes. On average, the waiting period between accepting an offer and closing can be between a month – to a month and a half. This does vary from state to state. 

While you can ask for extensions or shortening of this timing, your actual settlement statement will sometimes tell you when the final mortgage must be paid, which can be at the closing of the deal. 

Additionally, depending on your state, your settlement statement needs to be drawn up by an attorney, a title company, or an escrow firm. You might be required to meet for a closing appointment, which will need to be held at the offices where the documents are being prepared. 

 If there is an outstanding amount on your mortgage it will be paid using the proceeds of your sale. 

What happens to your mortgage when you sell your house and buy another? 

Timings around buying and selling homes are tight. And most sellers are trying to purchase a new home at the same time. As we mentioned, you will be responsible for your mortgage until the settlement statement. 

The processes of dealing with mortgages differ depending on if you sell first, or if you're purchasing first. 

What happens to the mortgage when you sell first?

If you can sell your home before buying a new one, or sell your house for cash, it makes moving forward a lot easier. By being paid first you don't need to consider additional financial tools, and your equity is freed up so you can use it for a down payment on the new home. 

What happens when you buy before selling with a mortgage? 

Buying a new home before selling yours often means you need to get a little creative. Finding that additional capital for that down payment can mean you'll need a: 

Contingent sale

With a contingency sale, you're informing the seller that you're only able to close on the settlement once you've sold your property. In competitive markets, sellers will be less than happy to take your offer. After all, cash is king. 

Bridge loan

This is a temporary loan that will allow you to pay the seller in cash for your new home, but you will be tied to selling your house. In this situation, you've qualified to pay for a new loan while still paying off your old mortgage. 

Assumable mortgage 

With this route, you, the buyer, take over the seller's existing mortgage. This arrangement is only available for Federal Housing Administration (FHA) or Veteran Affairs (VA) loans. 

This does require lender approval, and there isn't a change in terms - this means the new buyer can pay the same interest rate and loan balance. What this means is they are able to access better interest rates. 

But this is what happens when you sell a house with a mortgage. 

At the end of the day, you want to minimize the handover over the period between selling and buying. 


Get cash for your house in an instant with House Buyers of America

Selling a house with a mortgage - in short - can be difficult. 

The quickest and most hassle-free way to sell your house is to simply call House Buyers of America because we buy houses for cash. Call us at 855-659-3289 or fill out our online form

There is no obligation to sell to us, but we will make you a cash offer on your home without the additional commission costs. After you've answered a few questions, you can accept our offer and be on your way to selling your house within days!

Get an offer with a click of a button

Sell your home directly to House Buyers of America and can skip all the hassle and months of uncertainty. Simply enter your address – and get our offer with a few simple steps.

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Others simply want a hassle-free solution for downsizing into a smaller home and want equity in their legacy home. Estate Sales House Buyers of America have also helped thousands of people who have suddenly inherited an unwanted or unneeded property. When dealing with an estate, many heirs can’t decide or agree on when to sell the house or who will take care of the paperwork, so the house is left sitting vacant and deteriorating for months or years. Estate sales can bring out the worst in people and families often get torn apart in the process. The traditional real estate process can be complicated and often doesn’t work well for estate sales. The unique estate laws that apply in Maryland can also create some additional complications. So why not try a simple, fast, and hassle-free solution that all of your family members can agree on? Get an all-cash offer in as little as 10 minutes by contacting House Buyers of America. 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