Selling a House with a Mortgage? Here's What You Need to Know

Written By: Colin King, Seller Experience Manager

December 31, 2018

Are you planning to sell your home this year? As a Seller Experience Manager at Perch, I talk to people every day about the ins and outs of home selling. One of the most confusing parts of the process is the mortgage. In this post, I’ll answer the most common questions I get from customers about selling a home with a mortgage.

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1. Can I sell my house if I haven’t paid off my mortgage?

As long as you’re in good standing with your lender, selling a home with a mortgage is no problem. After all, the vast majority of homebuyers get 30 year mortgages but end up moving before their loan is paid off for some reason or another.

When you sell your home, you’ll use the money you make to pay off the remaining balance on your mortgage. Once you’ve paid your lender and covered any closing costs, the remainder is yours to keep. If you’re selling your home for less than what you owe your lender, you can either pay the difference out of pocket, request a short sale, or postpone your home sale till you can sell it for more.

2. How soon after buying my home can I sell it?

You can typically sell your home whenever you’d like. However, if you’re selling a house with a mortgage, it might be a smart idea to wait until you have enough equity to either profit or break even. The money you make from the sale would ideally cover your mortgage balance, closing costs, and in rare cases, prepayment penalties (some lenders charge this fee if you end your mortgage early). If you sell your home less than two years later and make a profit, you may also have to pay capital gains tax, so make sure to factor that in as well.

If you want to sell your home quickly without the hassles of repairs and open houses, Perch can help. We’ll give you a market-price offer on your home in just 24 hours and get you to closing in as little as 2 weeks. Learn more about selling to Perch here.

3. Can I get a mortgage on a new house if I haven’t sold my old one yet?

If you’re buying and selling a house with a mortgage at once, things can get a little tricky. In a perfect world, you would sell your old home and buy your new one on the same closing date. Your real estate agent can try to negotiate this scenario for you, but more often than not, one part of the transaction needs to happen before the other. Here’s how this might play out:

What if I buy my new home first?

-- You might have some trouble getting a new mortgage at ideal terms, as lenders may factor in your existing mortgage debt.

-- You’ll have to pay for two mortgages at the same time until you can sell your old house.

-- Your new house hunting budget may be limited if your potential down payment is locked away in your current home.

What if I sell my current home first?

-- You might need to move into temporary housing while you find and close on your new home, which can be both stressful and costly.

-- If you end up moving twice, you’ll likely have to spend significant time and money moving most of your belongings into storage.

-- You’ll be forced to speed up the house hunting process, potentially leading you to settle for a house that’s less than perfect.

So what’s the solution? You could make an offer on a new home that is contingent on selling your old home. However, this can make your offer less competitive since sellers prefer bids that won’t fall through, even if it means accepting a lower offer. You could also consider buying and selling using a service like Perch. We’ll give you an offer on your current home that’s valid for up to 6 months, giving you plenty of time to find your new dream home. We’ll also help line up your closing dates, so you can move out on your schedule and avoid overlapping housing costs. Learn more about Perch’s Buy and Sell service:

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4. When do I tell my mortgage lender that I’m selling my house?

You don’t need to tell your lender about your home sale until you’ve accepted an offer. However, it may be helpful to let them know earlier so they can give you an accurate mortgage payoff quote. This number will help you and your agent figure out how much the sale price needs to be so that you can cover the mortgage payment.

Beyond this, your lender’s involvement in the process is pretty limited. They may need some information about your buyer and their lender, but as long as your buyer is financially qualified, there should be no issues.

Tip: When you’re selling a house with a mortgage, your payoff amount will only include the interest you’ve accumulated up to that point, not the lifetime interest of the home loan.

5. Once I sell my house, how does my mortgage lender get paid?

When you sign the purchase contract, your closing manager will open up an escrow account. An escrow account is essentially a holding tank for the documents and money you’ll exchange in a house sale. On your closing date, the buyer will send their payment to the escrow account. Your title company knows that you’re selling a house with a mortgage, so they’ll make your final payment directly to your lender. Now, there are officially no liens on the home and ownership can be transferred over to your buyer.

Have a question that I didn’t cover? The Perch team is always here to help. Send us a message at support@perch.com.