Can You Sell a House With a Mortgage? Everything You Need to Know

If you're a homeowner wondering, "Can you sell a house with a mortgage?", the answer is yes. In fact, the majority of homeowners in California and across the U.S. sell their properties while still making monthly mortgage payments. Selling a house with a mortgage is completely legal, common, and often straightforward — as long as you understand the process, prepare for the financial implications, and work with the right people.

At Property Sales Group, we work with homeowners every day who are navigating tough financial situations, including negative equity, foreclosure, or urgent relocations. Whether you're facing an outstanding mortgage balance, need help paying closing costs, or just want a simpler way to sell your home, this guide will walk you through every step.

Can You Sell a House With a Mortgage?

Yes, you can sell a house with a mortgage, even if your loan isn’t completely paid off. In fact, most sellers still have an existing mortgage when they list their property. The key is ensuring your sale proceeds are enough to cover your remaining loan balance, accrued interest, and any other selling costs.

If your home sale generates more than your mortgage payoff amount, you’ll receive the remaining funds after paying off your lender and covering fees. If your mortgage balance is higher than your fair listing price, you may have to bring money to the table or explore a short sale. In some cases, homeowners may also consider a loan modification to adjust their mortgage terms before selling.

What Happens to the Mortgage When You Sell?

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Your mortgage lender is paid off at the closing date. When you sell your home, the buyer deposits funds into an escrow account. From there, the mortgage payoff is processed and sent to your mortgage company, satisfying your outstanding balance. This includes the loan balance, accrued interest calculated up to closing, and any fees.

Once your lender confirms receipt of the payoff amount, they release their claim on the title. That’s when ownership officially transfers to the buyer.

How to Sell a House With an Existing Mortgage

Step 1: Get Your Payoff Statement

Start by requesting a payoff statement from your mortgage lender. This document includes your current mortgage balance, interest due, and any fees. It gives you a precise mortgage payoff amount for a given closing date. Your lender typically provides this within a few business days.

If you have an existing mortgage balance on a fixed rate mortgage, the payoff may also include accrued interest and daily interest charges. You’ll need this number to determine if your listing price will be enough to pay off your debt.

Step 2: Determine Your Market Value and Equity

To estimate your home’s value, consider running a comparative market analysis or checking recent comparable homes in your local market. You can also request a cash offer from Property Sales Group for a no-pressure evaluation.

Your home equity is calculated by subtracting your mortgage balance from the market value of your home. For example:

Home value: $525,000
Remaining mortgage balance: $415,000
Earned equity: $110,000

If you have enough equity, you can pay off the loan, cover closing costs, and possibly walk away with cash in hand.

Step 3: Consider Other Financial Obligations

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Make sure to account for:

Real estate agent commission
Closing costs
Escrow fees
Property taxes
Homeowners insurance
Private mortgage insurance (if applicable)
Any home equity loans or a home equity line

These can significantly reduce the amount you take home. For distressed homeowners or those with financial obligations, this can be a deal-breaker. That's why many turn to direct buyers like Property Sales Group who eliminate the need for agents and cover many of these fees.

Step 4: Choose How to Sell

You have two main paths:

List the home with a real estate agent: You’ll prepare the home, pay agent fees, and go through open houses. This may work if you can afford time and repairs and want to attract potential buyers actively searching in the local market.
Sell your house to a direct buyer: With Property Sales Group, you skip the agent, showings, and most selling costs. We buy your home as-is, pay in cash, and close on your terms.

We coordinate with your mortgage company, title, and escrow teams to ensure your mortgage payoff happens correctly and quickly.

What If You Have Negative Equity?

Negative equity happens when your outstanding mortgage is greater than your home’s market value. This can occur due to declining property values, low down payment loans, or missed monthly payments. It’s sometimes called being "underwater" on your loan.

If you're in this position, you may:

Pay the difference out of pocket at closing
Attempt a short sale (requires lender approval)
Wait until you've gained more earned equity

A short sale involves selling the home for less than what you owe. Your lender must approve the deal, and you’ll need to show financial hardship. While this can affect your credit, it may be a better alternative than foreclosure.

Property Sales Group specializes in helping homeowners navigate short sale situations. We work with your mortgage lender directly to negotiate terms and take the stress off your shoulders.

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What About a Second Mortgage or Home Equity Loan?

If you have home equity loans, a home equity line, or a second existing loan, these must also be paid off at closing. They are considered additional liens against your property. If your home sells for less than the combined amount, you’ll need both lenders to approve a short sale or bring cash to closing.

In these situations, having a buyer who understands complex financial situations is key. We help homeowners resolve layered debt, settle liens, and avoid foreclosure.

What If You’re Behind on Mortgage Payments?

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You can still sell your house even if you're behind on your mortgage payments. In fact, selling quickly may be your best option to avoid foreclosure or further damage to your credit.

If you owe back payments, those will be included in your payoff statement. Your mortgage payoff amount will reflect the total loan balance, accrued interest, and penalties. Selling to a fast buyer can help you pay it off before the situation worsens. Alternatively, some homeowners explore loan modification options to cover mortgage payments temporarily while preparing to sell.

Can a Buyer Take Over My Mortgage?

While rare, some buyers may ask to assume your mortgage. This only works if:

Your mortgage is assumable (typically FHA, VA, or USDA)
The buyer qualifies with your lender
Your mortgage lender waives the due on sale clause

Most conventional loans are not assumable. Even if your buyer wants to take over the existing mortgage, they’ll likely need to refinance into a new mortgage.

What Happens After the Sale?

Once your mortgage lender receives the mortgage payoff, your loan balance is marked as fully paid. Your escrow officer handles this as part of the closing process, ensuring the outstanding mortgage is resolved and the title is clear for the buyer.

If your sale proceeds exceed your payoff amount, you receive the remaining funds. If not, you must pay the remaining balance out of pocket unless it’s a short sale.

You may also lose access to certain tax benefits, such as mortgage interest deductions, once your home sale is complete.

Benefits of Selling to a Direct Buyer Like Property Sales Group

If you want to sell your house quickly, avoid paying real estate agent fees, and eliminate the hassle of showings or repairs, selling to a direct buyer is a smart option. Here’s why homeowners choose us:

We pay in cash and close in as little as 7 days
We handle the entire closing process
We coordinate with your mortgage lender to ensure proper payoff
We buy properties in any condition and any financial situation

This approach helps you avoid the uncertainty of the traditional market and makes it easier to cover your financial obligations without stress.

Final Thoughts: Yes, You Can Sell a House With a Mortgage

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Selling a house with an outstanding mortgage is not only possible, it's something most homeowners do. Whether you have equity or you're facing negative equity, your financial situation doesn’t have to trap you. The key is understanding your mortgage balance, reviewing your payoff statement, and choosing the best path forward.

At Property Sales Group, we help California homeowners sell quickly and confidently. We’ll guide you through every step, cover many of the other selling costs, and ensure your outstanding mortgage balance is paid off smoothly.

Ready to sell your house with a mortgage? Get in touch today for a no-pressure, cash offer.

Frequently Asked Can You Sell a House With a Mortgage Questions

Can I sell my house if I still owe money on my mortgage?

Yes, you can sell your house even if you owe money on your mortgage. The sale proceeds will first go to paying off your remaining loan balance, accrued interest, and any fees. If there are funds left after payoff, you receive them.

What if I don’t have enough equity to cover my mortgage balance?

If your home’s market value is less than your remaining mortgage balance, you have negative equity. In this case, you may need to negotiate a short sale with your lender or bring additional funds to closing to cover the difference.

How do I get a payoff statement and why is it important?

A payoff statement is a document from your mortgage lender that specifies the exact amount needed to pay off your loan at a specific closing date. It includes your loan balance, accrued interest, and any fees. It’s essential for knowing how much you need to pay and to ensure your sale covers this amount.

Are there any penalties for paying off my mortgage early?

Some mortgage agreements include prepayment penalties if you pay off your loan before a certain period. Check your loan documents or ask your lender to confirm if this applies to you.

Can a buyer take over my existing mortgage?

Most mortgages are not assumable. Only certain government-backed loans like FHA, VA, or USDA loans may allow assumption, and the buyer must qualify with your lender. Otherwise, buyers will need to get their own financing.

What costs should I expect when selling a house with a mortgage?

Besides paying off your mortgage, you should budget for real estate agent commissions, closing costs, escrow fees, property taxes, homeowners insurance, and possibly private mortgage insurance. These reduce your net proceeds from the sale.

What happens if I’m behind on mortgage payments and want to sell?

You can still sell your house if you’re behind on payments. The payoff statement will include any overdue amounts and penalties. Selling quickly can help you avoid foreclosure and minimize credit damage.

How long does it take to close when selling a house with a mortgage?

The closing timeline varies but typically takes 30 to 60 days. Selling to a direct buyer like Property Sales Group can shorten this to as little as 7 days.

Will selling my house affect my credit score?

Selling your house itself doesn’t directly affect your credit score. However, if you fail to pay off your mortgage or have a short sale, it may impact your credit.

Can I use the proceeds from my home sale as a down payment on my next home?

Yes, many sellers use the remaining funds after paying off their mortgage and closing costs as a down payment on their next home, which can help reduce the need for private mortgage insurance and build home investment equity.

How can I cover mortgage payments if I’m struggling financially before selling?

Some homeowners explore loan modification options or other personal finance strategies to cover mortgage payments temporarily while preparing their home for sale.

How do loans secured by my home affect the sale process?

Loans secured by your home, such as home equity loans or lines of credit, must be paid off at closing along with your primary mortgage to ensure a clear title for potential buyers.

Why is understanding the local market important when selling?

Knowing the local market helps you set a fair listing price and attract potential buyers, making the selling process smoother and potentially more profitable.

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Can You Sell a House With a Mortgage? Everything You Need to Know