What Happens to Your Mortgage When You Sell Your House?

What happens to your mortgage loan when you sell your house?

1. Traditional home sale

In a traditional home sale, the proceeds from the sale of your home are used to pay off your mortgage. Here’s how it works:

• Once you accept an offer, your mortgage lender will provide a payoff amount, which includes your remaining loan balance, interest, and any fees.
• At closing, the buyer’s funds are used to pay off your loan, and any remaining proceeds go to you, the seller.
• If your home’s sale price exceeds your mortgage payoff, you’ll pocket the difference as profit.

If the sale price is lower than expected but still covers your mortgage balance, you simply break even.

2. Short sale

In a short sale, your home is sold for less than what you owe on your mortgage, and the lender agrees to accept less than the full amount of the loan. This process can be more complex:

• You’ll need your lender’s approval to proceed with a short sale.
• Once the home sells, the lender receives the sale proceeds and forgives the remaining balance (though not always; some lenders may pursue a deficiency judgment to recover the shortfall).
• While a short sale can help you avoid foreclosure, it can negatively impact your credit score.

It’s important to consult with a real estate agent or financial advisor to determine if a short sale is right for your situation.

3. Auction or other type of sale

If your home is sold at auction, either voluntarily or through a foreclosure process, what happens to your mortgage depends on the sale price:

• If the auction price is higher than your remaining mortgage balance, the loan is paid off, and you receive any leftover funds.
• If the auction price is lower than your mortgage balance, the lender may be left with a deficiency. Depending on state laws, the lender could still pursue you for the unpaid amount.

Other types of sales, such as selling your home directly to a cash buyer or investor, follow similar processes. Your mortgage will be paid off first, and any excess will go to you.

Can you buy before you sell if you have a mortgage?

Depending on the method you choose, buying a new home before selling your current one can be tricky, especially if you’re still carrying a mortgage. However, several strategies can help you manage this transition smoothly. Let’s explore the options you can consider to make it work.

Use a home sale contingency

One common way to buy before you sell is by including a home sale contingency in your offer on a new property. Here’s how it works:

• A home sale contingency allows you to make an offer on a new home contingent upon the sale of your current property.
• If your home doesn’t sell within a specified timeframe, you can back out of the new home purchase without penalty.

This approach can give you peace of mind, but it may make your offer less competitive in an active market where sellers prefer offers without contingencies.

Take out a bridge loan

A bridge loan is a short-term loan that helps you “bridge” the financial gap between buying your new home and selling your current one. Here’s how it works:

• The bridge loan provides the funds for your down payment on the new home, using the equity from your current home as collateral.
• Once your current home sells, you use the proceeds to pay off the bridge loan.

This option can be helpful if you need the funds to buy first, but keep in mind that bridge loans often come with higher interest rates and fees compared to traditional loans.

Use a buy before you sell program

Another option to consider is using a buy before you sell program, like HomeLight’s Buy Before You Sell program. This service allows you to buy your next home without waiting to sell your current one. Here’s how it works:

• The buy before you sell program lets you unlock the equity in your current home so you can make a strong, non-contingent offer on your new property — and only move once.
• After moving, you’ll have the flexibility to sell your home without the pressure of timing the sale perfectly.

Interested in learning more? Watch the short video below to find out how HomeLight’s Buy Before You Sell program can work for you.

Carry two mortgages

If your financial situation allows, you may choose to carry two mortgages at once. Here’s what to consider:

• You’ll need to qualify for both mortgages, which requires a strong financial profile and stable income.
• You’ll be responsible for two mortgage payments until your current home sells, which can be a significant financial burden. You could consider renting your first home.

While this approach offers unique flexibility, it’s important to ensure you can comfortably manage both mortgages, even for a short period.

FAQs on mortgage loans after a home sale

When do you stop mortgage payments when selling a house?
You should continue making mortgage payments until the sale is finalized and your mortgage is officially paid off at closing. Missing payments before the sale closes could result in penalties or harm your credit score.

What happens to your home equity loan or HELOC when you sell?
Just like your mortgage, a home equity loan or HELOC (home equity line of credit) must be paid off at the time of sale. These are secured against your home, so they cannot remain in place once you no longer own the property. The proceeds from the sale will go toward paying off the outstanding balance.

Should you pay off your mortgage before you sell your house?
You don’t need to pay off your mortgage before selling your house. In most cases, the sale proceeds are used to pay off the remaining loan balance. However, paying off the mortgage ahead of time could simplify the transaction if you have the financial flexibility to do so.

Will you pay fees for breaking your mortgage early?
Some mortgages come with prepayment penalties, which are fees for paying off your loan early. These vary depending on your lender and loan terms. It’s important to review your mortgage agreement or check with your lender to understand if any fees apply.

What happens if you sell your home and its value has gone down?
If your home’s value has decreased since you purchased it, you might sell for less than what you originally paid. In this case, you may not receive enough from the sale to fully cover your remaining mortgage balance. You’ll need to pay the difference out of pocket or consider other options, such as a short sale, if approved by your lender.

Partner with a top agent to sell your home

When it’s time to sell your home, having the right guidance can make all the difference.

Partnering with an experienced agent helps ensure that every step of your sale, including handling your mortgage, goes smoothly. They’ll provide expert insights and negotiate on your behalf to help you get the best possible outcome.

Ready to get started? Use HomeLight’s free Agent Match platform to find a top-rated agent who understands your local market and can guide you through the selling process. We analyze nearly 30 million transactions and thousands of reviews to determine which agent is best for you based on your needs.

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