How Selling a House With a Mortgage Really Works

Thinking about selling your home but still have a mortgage? You’re in good company. The majority of homeowners sell before their mortgage is paid off. In fact, selling a house with a mortgage is more common than not. and the process can be surprisingly straightforward when you have the right information.

At SOLD.com, we guide home sellers through every step of your real estate journey, helping you to sell confidently and efficiently. Whether you’re downsizing, relocating, or preparing to buy your next place, understanding how selling a home with a mortgage works is essential to achieving your goals.

Can You Sell a House With a Mortgage?

Yes. It’s completely normal to sell your home before the mortgage is paid off. In fact, most sellers still owe a balance on their mortgage when they list their property. That’s because when you close on the sale, part of the proceeds go toward paying off that loan in full.

If your home is worth more than what you owe, you’ll likely walk away with cash in your pocket. That money can go toward your next down payment, moving costs, or whatever comes next.

But What If You Owe More Than It’s Worth?

If your home’s value has dropped below what you owe, you may have negative equity or be “underwater”. That doesn’t mean you’re stuck, but you’ll have fewer options. This scenario may require a short sale or another creative solution. We’ll walk you through how that might look as well.

Step-by-Step: How Selling a House With a Mortgage Works

Selling a home while you still have a mortgage doesn’t require jumping through hoops, but it does require careful coordination. Here’s a step-by-step guide to walk you through the process, from planning to closing.

1. Request a Payoff Statement From Your Lender

This is your first stop. Contact your mortgage lender and request a payoff statement. A payoff statement (or payoff letter) is a document that shows how much money you need to pay off your loan in full.  The payoff amount is different from your regular mortgage balance, and it changes daily due to accruing interest. This includes principal, interest, and any prepayment penalties or fees. You’ll need an accurate number to understand how much equity you have and to complete your sale properly. 

These statements are time-sensitive, typically valid for 10–30 days. You may need to request a new one as you get closer to your closing date.

2. Calculate Your Home’s Value

Next, determine what your home is worth in today’s market. This is essential for figuring out whether your home sale will cover your remaining loan and how much you’ll pocket afterward.

How to do it:

• Look up comparable sales in your neighborhood.
• Use an online home value estimator.
• Get a professional valuation from a real estate agent or appraiser.

Once you know your home’s market value, subtract your mortgage payoff amount and expected selling costs (like agent commissions and taxes). That gives you your estimated net proceeds.

3. List Your Home for Sell

With your numbers in hand, it’s time to list your home. You can choose to work with a real estate agent or list it yourself as an FSBO. Set a realistic asking price based on your local market trends or consult an agent. Stage your home and use professional photography to showcase your home at its best and attract more buyers. Listing with the right strategy increases your chances of selling quickly and profitably, even with a mortgage in place.

4. Negotiate Offers

When offers start coming in, evaluate each one carefully. You’re not just looking for the highest bid, you want the one that’s most likely to close smoothly and cover your loan balance. Consider all the necessary factors when accepting an offer, like offer price vs mortgage payoff, buyer contingencies (financing, inspection, sale of another home) and closing timeline. Finding the sweet spot for all of these factors can be difficult, so be sure to ask for a seller’s net sheet from your agent   to help compare offers.

5. Close the Sale

Once you’ve accepted an offer, the deal moves into escrow. During this period, inspections, appraisals, and buyer financing are finalized. You’ll work with your escrow officer or attorney to complete all necessary documents. At the closing table, the buyer’s funds are distributed to cover your mortgage and other fees. The remainder goes to you as profit.

6. Pay Off Your Mortgage

At closing, your mortgage is paid in full directly from the buyer’s funds. The title company or attorney handling the transaction ensures this payment is processed correctly and your lender releases the lien on the property. After closing, your lender will send a confirmation showing your mortgage has been satisfied. Keep this document for your records.

Selling a House With a Mortgage to Buy Another House

For many homeowners, selling and buying happen back-to-back — or even at the same time. This can feel like juggling two major financial moves at once, especially when a mortgage is still in play. But rest assured, with the right preparation, it’s completely doable.

Coordinating the Timeline

Timing is everything when you’re both selling and buying. Ideally, you’ll close on your current home before closing on your next one. That way, you can use your equity toward your new purchase. But real estate markets move fast, and sometimes you’ll need to buy before you’ve sold. Timing both transactions smoothly takes good planning and possibly some financial creativity. Some options to consider include:

Option 1: Sell First, Then Buy

• Pros: You know exactly how much you can afford based on your net proceeds.
• Cons: You may need temporary housing or a rent-back agreement if you can’t buy immediately.

Option 2: Buy First, Then Sell

• Pros: You avoid moving twice and don’t feel rushed to find the right home. This option often works best for sellers with strong credit and income, or for those using bridge loans or equity tools.
• Cons: You may need extra financing to cover the down payment while your current home is still on the market.

Option 3: Close Both Homes on the Same Day

• Pros: Most efficient option with minimal disruption.
• Cons: Requires precise coordination between multiple parties (agents, lenders, title companies). However, a dedicated transaction coordinator or experienced agent can help line up both closings.

Financing Options

If you’re relying on your current home’s equity but need to buy before it sells, certain financing solutions can help bridge the gap.

Bridge loans: A bridge loan is a short-term loan designed to “bridge” the financial gap between selling your current home and buying your new one. It allows you to access your home equity early. These loans typically come with higher interest rates and shorter repayment terms.

Home sale contingencies: When making an offer on a new home, you can include a clause making the purchase dependent on the sale of your current home. This reduces financial risk by protecting you from owning two homes at once, but  in more competitive markets, sellers may not accept contingent offers.

Cash buyer programs: SOLD.com can connect you with investors and home-buying models that offer cash offers or fast closings. This gives you the flexibility to access your equity quickly, even if your home isn’t sold on the open market yet. Keep in mide that offers may be slightly below market value, but can save money by avoiding multiple moves, extra financing, or missed opportunities on the next home.

What Happens If You Have Negative Equity?

Negative equity, also known as being “underwater” on your mortgage, means you owe more on your home than it’s currently worth. This can feel discouraging, especially if you’re ready to sell and move on. But you’re not out of options. The good news is that even in a tough equity position, there are strategies you can use to move forward. We’ll help you explore the most practical solutions and connect you with partners who can guide you through them.

Your Options

• Short sale: With your lender’s approval, you may be able to sell the home for less than what’s owed. It impacts your credit but can help you avoid foreclosure. You will need to demonstrate financial hardship, but this will help you avoid foreclosure and relieve you of an unaffordable mortgage.
• Pay out of pocket: If you have the funds and the difference between your home’s market value is manageable, you can cover the difference at closing and preserve your credit. It’s a straightforward exit if you have the financial ability.
• Rent the property: If selling doesn’t make financial sense right now, renting the home can be a solid interim solution. This allows you to hold onto the property until values increase or until you’ve paid down more of your mortgage.
• Loan modification or refinancing: If your payments are unmanageable, or if you’re facing financial hardship, talk to your lender about modifying the loan terms or refinancing. Loan modification adjusts your existing loan while refinancing usually includes bundling multiple debts into one new loan, typically with less interest.

Selling a house with a mortgage when you’re underwater doesn’t mean you’re stuck. The key is knowing your options, understanding the pros and cons of each, and having the right support.

Special Situations to Consider

Assumable Mortgages

If you have a government-backed mortgage, like an FHA, VA, or USDA loan, your buyer may be able to assume the loan. This means they take over your existing mortgage at your current interest rate, which can be attractive if rates have risen since you bought.

Not every loan qualifies, and your lender must approve the assumption, but it can be a great selling point in the right scenario.

Home Equity Loans and Second Mortgages

If you have a home equity line of credit (HELOC) or second mortgage, these will also need to be paid off during the sale. Just like your primary mortgage, the title company will use sale proceeds to pay off these debts at closing.

FSBO vs. Real Estate Agent: What’s Better When You Have a Mortgage?

You can sell your home with or without a real estate agent, even if you still have a mortgage. The best path depends on your comfort level and goals.

• Selling on your own (FSBO): You’ll manage the paperwork, negotiate with buyers, and ensure your mortgage gets paid off correctly. It can save on commission fees, but requires more time and effort.
• Working with an agent: A professional handles the listing, marketing, negotiation, and closing logistics—including communicating with your lender.

SOLD.com helps sellers on both paths. Whether you need an experienced agent or prefer to connect with a cash buyer, we’ll match you with the right partner.

Frequently Asked Questions

Can I sell a house before it’s paid off?
Yes. Your lender will be paid from the sale proceeds at closing. It’s a standard part of most home sales.

Do I need to notify my lender before listing?
Not necessarily, but you will need a payoff statement before closing. It’s best to get one early in the process.

What happens to escrow funds?
Any unused funds in your escrow account (for taxes or insurance) will be refunded within 30–60 days after closing.

Do I need good credit to sell my home?
Your credit doesn’t affect your ability to sell, but it may impact your next purchase if you’re buying again soon.

When Do You Stop Paying Your Mortgage When Selling A House?

Keep making monthly payments until the sale is finalized. Missing a payment can hurt your credit and delay the transaction.

The Bottom Line

Selling a house with a mortgage is not only common, it’s often the simplest way forward. The key is knowing how the process works and partnering with experts who can guide you along the way. Whether you’re selling to upgrade, relocate, or buy again, SOLD.com is your trusted partner. We’ll help you explore your selling options, understand your equity, and take the next step with confidence.

Ready to see what selling options fit your goals? Take our quick quiz and get started on your selling journey today!