Thinking about selling your home but still paying off a mortgage? You’re not alone. It’s a common concern.
The good news is that mortgages don’t prevent homeowners from selling. In fact, most properties on the market still have a loan attached.
In this guide, we’ll walk through exactly how you can sell your home with a mortgage and what happens at each step of the process.
What happens to your mortgage when you sell your house?
When you sell a home that still has a mortgage, the buyer’s payment goes directly toward your remaining mortgage balance.Â
After that, and after all necessary fees get paid, the rest of the money belongs to you. The system is designed this way so you don’t need to pay off your loan in advance — everything happens as part of the sale.
Imagine you sell your house for $350,000 and you still owe $200,000 on the mortgage. At settlement, the closing agent wires the funds: $200,000 to pay off the balance, $20,000 for fees and commissions, and $130,000 to you.Â
What sellers often overlook
Most homeowners plan for the big numbers like the sale price, the mortgage payoff, and the agent’s commission. But smaller details like the ones below can still affect your bottom line at closing:
— Prepayment penalty: Some mortgages charge a fee if you pay them off early, so review your documents carefully.
— Property taxes: At closing, property taxes are prorated based on the settlement date. You’re responsible for the portion covering the time you lived in the home, and the buyer covers the rest.
— Homeowners association (HOA): If your home is part of a neighborhood with an HOA, you must pay any outstanding dues before the sale goes through. Some associations also charge a transfer fee when the property changes hands.
5 steps to sell a house with a mortgage
Selling a home with a mortgage is similar to selling a house that you own outright. Here are five steps to guide you through the process.
1. Reviewing your mortgage payoff
Find out exactly how much you still owe on your mortgage. Your monthly statement provides a ballpark idea, but it won’t reflect the exact balance. For example, while your statement might say you owe $198,000, the payoff could be closer to $200,000 once you factor in interest and fees. That difference matters because you’ll have to cover it when you sell your home.Â
The payoff amount also determines your home equity — the difference between the market value and your remaining mortgage balance. Knowing this figure is important because it shapes the pricing strategy and defines how much cash you’ll have for your next move.
2. Coordinating with professionals
To find your accurate mortgage payoff figure, you’ll need to get a payoff statement from your lender. This document outlines your remaining principal, interest calculated through the closing date, and any applicable fees. Next, you’ll need to coordinate with a few professionals.Â
Several people play a role in making sure the transaction goes smoothly, including:
— Your real estate agent markets the property and manages negotiations.Â
— The buyer’s lender secures the financing and ensures the funds are ready for closing.
— The closing agent reviews the documents, oversees the funds, and clears the mortgage from the title.
3. Setting an appropriate asking price
With the mortgage payoff amount in hand, the next step is setting a sale price. This figure should reflect both the local market and the expenses you need to cover. Many sellers lean on a real estate agent for guidance. They can compare your property to recent sales and suggest a range that attracts buyers without cutting into your proceeds.
If you’re not working with an agent, though, you can take on this step yourself. Look at public records and sites like Zillow, Redfin, and Realtor.com to review similar home sales in your area. Then, rely on those same platforms to track pricing trends.Â
Once you have a sense of the market, compare those numbers against your mortgage payoff and estimated fees to determine your minimum sales price.
Say your payoff is $200,000 and closing costs add another $15,000, you’ll want to sell your house for more than $215,000 to break even. Of course, most people aim to make a profit, not just cover costs. If comparable homes nearby are going for around $300,000, list within that range. Doing so keeps you competitive while still leaving you with solid earnings after paying off the mortgage and covering expenses.Â
4. Negotiating with buyers
Once your home is on the market, offers might start coming in. There’s more to a bid than the price on paper, though. You should consider, for example, that buyers may request repairs or ask for credits to cover closing costs. These concessions can affect how much you walk away with.
For instance, a buyer might demand $10,000 in repairs, offer $295,000 (close to your asking price), and rely on shaky financing. Another might offer $290,000, request $5,000 in repairs, and have strong preapproval. In this scenario, the second option could be the smarter choice because it’s more likely to close smoothly.
5. Managing closing details
Closing means both parties sign the paperwork, and the lender transfers the funds. By this point, most of your work as the seller is done. Your final task is to review and sign the settlement statement. This lists the share for your mortgage, the portion for closing costs, and the remainder for you. Once this step is finished, the buyer takes official ownership, and the sale is complete.
...in as little as 3 minutes – no credit impact
Can you sell a house with negative equity?
Having negative equity, often called being underwater, is when your mortgage balance exceeds your home’s market value. In this situation, the sale alone won’t fully cover what you owe. That makes selling more difficult, but there are still options to consider, including:Â
— Cover the shortfall with savings: If you have the funds, you can bring cash to closing to make up the difference between the sale price and your mortgage payoff.Â
— Request a short sale from your lender: This lets you sell for less than you owe, but you’ll usually still be responsible for the remaining balance. A short sale can also affect your credit, and there’s a two to four-year waiting period before you can qualify for another mortgage.
— Wait to sell until conditions improve: One option is to hold off until you’ve paid down more of your mortgage or market conditions improve. This gives you a better chance of breaking even or making a profit.
Qualifying for a mortgage while your home is on the market
When you’re buying and selling a house at the same time, it’s natural to wonder if you can qualify for a new mortgage while your current home hasn’t sold yet. The short answer is yes, but approval depends on your financial profile and how lenders view your ability to handle two mortgages at once.
One of the biggest factors is your debt-to-income (DTI) ratio, which tracks the portion of your monthly income used for debt payments. If carrying two mortgages pushes this ratio too high, qualifying for a new loan may be difficult. Some buyers fill the gap with temporary financing, such as a bridge loan or a home equity line of credit (HELOC), to cover expenses until their first home closes.
This is where Better provides an edge. Our One Day Mortgage and One Day HELOC use AI-powered technology to deliver a pre-approval or loan commitment in just 24 hours. That speed lets you confidently make offers on a new home, even before your current property sells, and move smoothly through the transition.
Selling made simple with Better
Selling your house comes down to a few key elements: knowing your payoff amount, setting a realistic price to avoid going underwater, and staying on top of closing details. Even in more challenging situations, like having negative equity or needing to buy and sell at the same time, there are clear paths forward.
At every stage of homeownership, Better serves as a modern partner to guide you. Better’s AI-powered technology helps you compare mortgage rates and plan your next home purchase with confidence.
Get preapproved with Better and see your home-buying budget in as little as three minutes.
...in as little as 3 minutes – no credit impact