Essential Tips for Selling a Home with a Mortgage

28 January 2026

Selling a home you haven’t fully paid off yet? You're not alone. In fact, most people in the real estate world have to navigate the tricky waters of selling a home with a mortgage. It’s a bit like trying to run a three-legged race—you can still win, but it takes some coordination and the right strategy.

If you're feeling overwhelmed, don't worry. With a little know-how and some straightforward planning, you can sell your mortgage-backed house smoothly and maybe even come out ahead. So, grab a cup of coffee, get comfy, and let's break it all down together.

Can You Sell a House with a Mortgage?

Absolutely, yes! Most homeowners sell their houses before they finish paying off the mortgage. When you sell, the outstanding mortgage balance is paid off with the proceeds from the sale. Sounds simple, right?

But here's the catch: if your home’s value has dropped or you haven't built up much equity, selling can get a bit more complicated. That's why getting a solid game plan in place is key.

Understand Your Mortgage Payoff Amount

Before you list your house or even call a real estate agent, find out exactly how much you still owe on your mortgage. This amount might be a little different from what you see on your latest statement due to interest, fees, and other fine print stuff.

📌 Pro Tip: Ask your lender for a “mortgage payoff statement.” It's the official amount you'll need to settle your mortgage in full.

Having this info helps you determine how much you'd need to make from the sale to cover your debt—and hopefully have something left over.

Figure Out Your Home’s Market Value

Next up: it's time to get real about your home's worth. And no, this isn’t the number you want it to be. (We’ve all been there.)

Call in a local real estate agent or hire a home appraiser who knows the area. They’ll give you an accurate market value. Why does this matter?

Let’s say your mortgage balance is $280,000, and your home is worth $350,000. Sweet! You’ve got $70,000 in equity (minus selling costs, of course). But if the market has dipped and your home's only worth $260,000, you’re in “underwater” territory—meaning you owe more than the home’s worth.

Calculate Your Home Equity

Your home equity is the difference between what your home is worth and what you still owe on your mortgage.

Here’s a quick formula:

Home Value – Mortgage Payoff Amount = Home Equity

The more equity you have, the bigger your financial cushion when you sell. This equity can cover closing costs, agent commissions, maybe even your next down payment.

If your equity is low or negative, don’t panic. There are still options, and we’ll cover those below.

Know Your Mortgage Type

Not all mortgages are created equal, and the type you have can affect your selling process.

Fixed-Rate Mortgage

Good news—if you’ve got a plain vanilla fixed-rate loan, selling is pretty straightforward. You'll just pay off the remaining balance at closing.

FHA, VA, or USDA Loans

If you have one of these government-backed loans, the process is similar but may have a few extra steps or restrictions. For example, a VA loan might be assumable, meaning the buyer can take over your loan terms (which could be a selling point!).

Adjustable-Rate Mortgage (ARM)

Timing is more critical here. If your ARM is about to adjust to a higher rate, you might want to sell before that change makes your payments skyrocket.

Prepare for the Costs of Selling

Selling a house isn’t free—even if you make a profit. There are several costs to plan for:

- Agent commissions (usually 5-6% of the sale price)
- Closing costs (1-3%)
- Repairs or renovations
- Staging and photography
- Concessions for the buyer (if you offer any)

Let’s say you sell your home for $300,000. After paying off your $250,000 mortgage and about $18,000 in selling costs, you’d walk away with roughly $32,000. Not too shabby, but it helps to crunch the numbers beforehand.

Talk to a Real Estate Agent (Seriously)

This isn’t the time to go full DIY. A real estate agent can:

- Price your home competitively
- Suggest improvements that increase value
- Market your home effectively
- Help you negotiate with buyers
- Coordinate with your lender at closing

They’re like your co-pilot while you navigate the process—and trust me, you’ll be glad you have one.

Consider the Timeline

Here’s where selling with a mortgage gets a little bit like musical chairs. Timing is everything.

Ideally, you’ll align your home sale with your next move—whether it’s buying a new house, renting for a while, or moving out of town. But remember: you can’t fully close the deal until your mortgage is paid off at the closing table.

So, if your buyer has delays or your new place isn’t ready, you could end up juggling two housing situations. Planning ahead can help keep the stress to a minimum.

What Happens at Closing?

The closing is where all the magic happens—and by magic, we mean paperwork. Lots of it.

Here’s what goes down:

- You sign documents transferring ownership to the buyer.
- The buyer’s lender sends the funds to your lender to fully pay off your mortgage.
- Any remaining balance (after costs and commissions) goes to you.
- You hand over the keys, and boom—you’re done.

Your mortgage is fully paid off, and you’re officially out of the driver’s seat.

Selling When You’re “Underwater”

What if your mortgage is more than your home’s value? That’s called being “underwater,” and it’s not ideal—but it’s not a dead end either.

You have a few options:

1. Bring Cash to Closing

If you really need to move, and you can afford to pay the difference between your sale price and mortgage balance, you can cover the shortfall out-of-pocket.

2. Short Sale

With lender approval, you might be able to sell your home for less than you owe. The lender agrees to take a loss to avoid the cost of foreclosure. It’s not great for your credit—but it's usually better than foreclosure.

3. Rent It Out

If the market’s not cooperating, you might hold onto the property and rent it out until values go up. You'd need to make sure the rent covers your mortgage, taxes, and maintenance costs.

Avoid Prepayment Penalties

Some mortgages come with prepayment penalties. These are fees you pay for paying off the loan early (yes, ironically, some lenders don’t want you to pay them back too soon).

Check your original mortgage paperwork or contact your lender to see if this applies. If it does, factor that cost into your selling budget.

What If You Want to Buy a New Home Right Away?

Selling and buying at the same time can get... let’s say, “interesting.” If you’ve still got a mortgage on your current place, lenders will look at your debt-to-income ratio before approving a new loan.

Options to make it easier include:

- Contingent offer: Make an offer on your new home that depends on selling your current one.
- Bridge loan: Short-term loan that covers the gap between sales.
- Rent-back agreement: After closing, rent your home from the new owner for a month or two while you move out.

Work closely with your real estate agent and mortgage lender to nail down the right strategy without biting off more than you can chew.

Communication Is Everything

Keep everyone in the loop—your lender, your real estate agent, your buyer’s agent, your attorney (if you have one). The more transparent and proactive you are, the smoother the process will be.

There’s a lot of moving parts when you’re selling with a mortgage, so having clear and constant communication can prevent last-minute surprises.

Final Thoughts

Selling a home with a mortgage might seem like running through an obstacle course with a blindfold on—but once you understand the steps, it's totally doable. The key is knowing your numbers, planning for the expenses, and teaming up with the right professionals.

Remember: millions of people sell homes they still owe on every single year. With a little prep work, you can do it too—and maybe even come out ahead.

So don't stress. Get organized, stay ahead of the game, and take things one step at a time. You’ve got this.