Selling a house you still owe on

Yes, you can sell a house you still owe money on

This is one of the most common questions we hear: "Can I sell my house if I still have a mortgage?" The answer is yes. In fact, most homeowners who sell still have a mortgage. The loan doesn't have to be paid off before you sell. It gets paid off as part of the sale, at closing, from the money the buyer pays. Whatever is left after the payoff and closing costs goes to you.

This page explains how that works, what can complicate it, and what to do if you owe close to, or more than, what the house is worth.

How a mortgage payoff works at closing

Here's the basic sequence in a New York sale:

1. You sign a contract to sell the house.
2. Your attorney requests a payoff letter from your mortgage servicer. The payoff letter shows the exact amount needed to pay the loan in full as of a specific date, including principal, interest up to that date, and any fees.
3. The title company searches public records for all mortgages and liens on the property.
4. At closing, the buyer's funds are used to pay off your mortgage directly. The lender receives its money, and later records a satisfaction showing the loan is paid.
5. After the mortgage, any other liens, and your closing costs are paid, you receive the rest.

You don't need to bring money to closing unless you owe more than the sale price covers.

What "equity" means

Equity is the difference between what your house is worth and what you owe on it. If your house would sell for $500,000 and you owe $300,000, you have about $200,000 in equity before selling costs. When you sell, your equity minus costs is roughly what you walk away with.

When we make an offer, we'll ask roughly what you owe so we can show you an estimate of your net proceeds. You don't need exact numbers to start. Your attorney will get the official payoff before closing.

Second mortgages and home equity lines of credit

If you have a home equity loan or a home equity line of credit, it's also secured by the house and gets paid off at closing the same way. With a line of credit, your attorney will usually make sure the line is frozen and closed as part of the payoff, so no new draws can be made after the payoff amount is calculated.

Tell us about every loan secured by the house when you contact us. Surprises at closing can delay everything.

Prepayment penalties

Most residential mortgages today don't carry prepayment penalties, but some older or nontraditional loans may. Check your loan documents or ask your servicer. If there is one, it will be included in the payoff amount.

What if you're behind on payments?

You can still sell. Past-due payments, late fees, and other charges are added to the payoff. If you're behind, timing matters, because fees and interest keep adding up and the lender may move toward foreclosure. See our page on falling behind and foreclosure for more on your options and your rights under New York law.

What if you owe about as much as the house is worth?

If there's very little equity, selling may still work, but the numbers get tight. Remember that closing costs, transfer taxes, and your attorney's fee all come out of the sale. If those costs push the total above the sale price, you'd need to bring money to closing to cover the difference.

We'll show you the estimated numbers clearly in our offer, so you know where you stand before you commit to anything.

What if you owe more than the house is worth?

If your mortgage balance is higher than the house's value, you're what's called "underwater." A normal sale won't fully pay off the loan. In that case, your options include:

• Bringing cash to closing to cover the shortfall
• A short sale, where the lender agrees to accept less than the full balance
• Staying in the house and continuing to pay while the balance comes down or values rise
• Talking to your lender about other options

We have a separate page on short sales that explains how they work.

Selling a house with a mortgage to us vs. on the open market

The mortgage payoff works the same either way. The differences are in everything else. On the open market, your buyer usually needs their own mortgage, which brings an appraisal, a loan approval process, and the risk that their financing falls through. When you sell to us, there's no buyer mortgage involved, so the closing timeline is more predictable.

Can a buyer take over your mortgage?

Generally, most conventional mortgages have a due-on-sale clause, which means the full loan balance becomes due when the property is sold or transferred. Some government-backed loans may be assumable under certain conditions, with lender approval. In our purchases, we pay off your mortgage at closing. We don't ask sellers to leave their loans in place.

Getting your payoff amount

You can request an estimated payoff from your servicer at any time, usually online or by phone. It's a useful number to have when you're considering selling. Keep in mind that the official payoff your attorney orders for closing will be good through a specific date, and interest continues to accrue daily.

After closing

After the loan is paid off, your servicer should send you confirmation, and a satisfaction of mortgage is recorded with the county. If you had an escrow account for taxes and insurance, any remaining balance is typically refunded to you after the loan is closed. Cancel your homeowner's insurance only after closing, and ask whether you're owed any refund on the premium.

Tax considerations

Selling your primary home may qualify for a federal capital gains exclusion if you meet ownership and use requirements. Having a mortgage doesn't change that. Your accountant can tell you whether any of your gain is taxable.

How the sale works with us

1. Tell us about the house and roughly what you owe.
2. We visit once and send a written offer that shows your estimated net proceeds.
3. Your attorney reviews the contract and orders the payoff letter.
4. We close on your date.
5. Your mortgage is paid in full from the sale, and you receive the balance.

Common questions about selling with a mortgage

Will my lender try to stop the sale?

No. Lenders expect loans to be paid off when houses are sold. As long as the payoff is covered, the lender just needs to receive its money.

Do I keep paying the mortgage while the sale is pending?

Yes. Keep making your regular payments until closing. Missing a payment can add fees, hurt your credit, and complicate the payoff.

What about my escrow account?

If your lender collects taxes and insurance in escrow, any balance left after the loan is paid off is generally refunded to you after closing.

I have a mortgage on another property too. Does that matter?

Only the loans secured by the house you're selling are paid at that closing. Other properties aren't affected.

Know your number

Before deciding anything, it helps to know three numbers: roughly what the house is worth, roughly what you owe, and roughly what it would cost to sell. Once you have those, the right choice usually becomes clearer. We're happy to help you figure out the first and third. Your servicer can tell you the second.

Estimating your net proceeds

Here's a simple way to estimate what you'd walk away with. Start with the sale price. Subtract your mortgage payoff, including any second mortgage or home equity line. Subtract closing costs that the seller usually pays in New York, such as your attorney's fee and the state transfer tax. If you're listing with an agent, subtract the commission and any repair credits. Subtract any liens or unpaid taxes. What's left is your rough net.

When we send an offer, we'll do this math with you, using your actual numbers, so you can see what you'd receive before you make any decision.

Selling when rates are higher than your mortgage rate

Many homeowners have a mortgage with a low rate they locked in years ago. Selling means giving up that rate. That's a real cost if you're planning to buy again, because your next mortgage may have a higher rate. It's worth considering as part of your decision, especially if you're moving within the area. If you're moving out of state, downsizing, or moving into a situation where you won't need a mortgage, it may matter less.

Paying off a mortgage early vs. selling

Some homeowners consider paying down the mortgage before selling to increase what they'll receive. In most cases, it doesn't change your overall position: whatever you pay down now is money you'd otherwise receive at closing. It can make sense in specific situations, but it's usually not necessary. Talk to your financial advisor.

Selling with a mortgage in a deceased person's name

If the person on the mortgage has passed away, the estate or heirs can still sell the house. The mortgage is paid off from the sale like any other. Let the servicer know about the death, and ask what documents they need. Keep making payments if possible, to avoid fees and default. See our inherited house and probate pages for more on how estate sales work.

Selling a house you co-own

If you own the house with someone else, both owners typically need to sign the sale documents, even if only one person is on the mortgage. If co-owners disagree, the situation can become complicated. An attorney can explain your options.

How the sale works

Questions