What Happens to Your Mortgage in a Typical Sale

In a traditional home sale, the goal is usually to sell your home for more than what’s left on your mortgage. If you’ve been paying your mortgage for years, you’ve likely built equity—which you can cash in on at closing.

At closing, the buyer brings funds to cover the full purchase price. Those funds go toward:

  • Paying off your remaining mortgage
  • Covering any HELOCs or home equity loans
  • Paying your closing costs (taxes, commissions, etc.)

Whatever remains is your profit—which you can use for a new home or anything else.

Related: Different Types of Mortgages

What Happens to Your Mortgage in a Short Sale

A short sale happens when you sell your home for less than what you owe on the mortgage. You must work with your lender, as they’ll need to agree to accept less than the full amount.

Unlike a traditional sale, the lender—not you—gets the final say on whether or not to accept a buyer’s offer. This can slow the process significantly.

What Happens if You Buy and Sell at the Same Time

Selling First

If you’re buying and selling simultaneously, selling your current home first is usually easiest. That way, you can use your profit to make a down payment on a new home.

Buying First

If you choose to buy your next home first, you’ll need to figure out how to buy without the funds from your current home’s sale. You have a few options:

Home Sale Contingency

Include a clause in your purchase offer that says you’ll only close on the new home once you’ve sold your current one. This can provide an exit strategy, but it may make your offer less attractive to sellers.

Bridge Loan

A short-term bridge loan can help you cover the down payment on your new home. You’ll repay the loan once you sell your old home.

Carry Two Mortgages

If you can afford it, you might choose to hold two mortgages temporarily. This gives you more flexibility but comes with added financial risk.

Related: House Buying Checklist

If You Want to Sell Your Home Before the Mortgage is Paid Off…

a man standing holding a for sale signage

Contact Your Lender

Start by requesting a mortgage payoff quote. This number will include any interest and fees and is typically valid for 10–30 days. Be sure to also check your loan documents for prepayment penalties.

Decide on a Sale Price

Work with a real estate agent to price your home so that it covers:

  • Your mortgage payoff amount
  • Closing costs
  • Any prep expenses before selling

Any profit can be used as a down payment on your next home or saved for other needs.

Get Your Estimated Settlement Statement

Your agent will open an escrow account and help provide a cost breakdown to show you how much you can expect to walk away with after the sale.

What About Selling a Home That’s Underwater?

A home is “underwater” when the mortgage balance exceeds the home’s market value. While it’s still possible to sell, you’ll face challenges. Your options include:

Delay the Sale

If you can, stay in the home until the market improves—or rent it out in the meantime.

Pay the Difference

If you sell for less than you owe, you can pay the lender the difference in cash. This option is only viable if you have the funds on hand.

paying cash

Request a Short Sale

As mentioned earlier, a short sale may be approved by your lender. Many lenders prefer this over foreclosing.

Related: Buying a Foreclosed House

Are you looking to buy a new home or refinance your existing mortgage? Find out how Mares Mortgage can help!