While it may come as a shock for a few of those reading this piece, selling a home with an unpaid mortgage is fairly normal. After all, it can take up to 30 years to fully pay off. Also, when you consider that most families will move from their home within 15-20 years, it starts to paint a picture.

To answer:

  • Can you sell a house that is not paid off?
  • Can you sell a house with a mortgage?
  • Can you sell your house if you still owe on it?

The simple answer is yes.

But what are the steps to selling your house with a mortgage on it? Well, the first step is to call up your mortgage holder, or the lender.

Call your lender

It’s always in your best interest to call your mortgage lender and ask what outstanding amount you still owe them. This figure is only valid for 10 to 30 days as interest can build and change that amount.

Knowing your outstanding amount also gives you an indication of what price you need to list the property at, as you will need the sale amount to cover your outstanding debt. Another step to remember is to review your mortgage paperwork.

What you’re looking for is the due-on-sale clauses. This clause protects lenders by requiring you to pay their mortgage loan in full when you sell your home, or transferring the deed to someone else.

Most lenders will be interested in whether or not you’ll be able to settle the outstanding amount. But, generally, they don’t get too involved in the process.

This being said, they might want access to some information about your buyer’s mortgage lender. In most cases they can’t make you change who you sell to. As long as your potential buyer can get a preapproved mortgage, they are happy.

While selling a house with a mortgage is pretty common, what happens if the home sells for less than the outstanding amount owed on the mortgage?

Selling below what you owe

For those in the unfortunate position of selling a home that’s below the amount owed on the home’s mortgage, they are in a tough situation.

This situation has a name: a short sale.

As stated above, short sale houses occur when the owner of the home owes more money on the property to a lender than its evaluated listing price – but is in the position where they need to sell it anyway.

While it seems unlikely that your home will devalue so quickly, it can happen. Whether it is market-related, the owner has overextended their credit, or an undesirable development has occurred, there are a number of steps that need to be taken before the sale can occur, as well as an agreement.

The process is started when the lenders receive the seller’s (your) paperwork. They then need to acknowledge the receipt of the file – this can take up to a month. When this has been finalized, the bank sends out a negotiator.

Once this negotiator has been sent out, a broker price opinion is ordered. The broker creates an educated opinion of the value of the property. Usually, banks are not willing to share the findings in these reports.

After this has taken place a second negotiator is assigned, and then a file is sent for review.

And the final step is the bank issues a short sale approval letter. This is only done if the sale is approved and if the situation is dire. They might direct the owner to a foreclosure auction.

This is to just summarize the processes the seller has had to go through to sell their property. If they were hoping for a fast cash sale, they would be disappointed. It does, however, point to the fact that these owners want to sell their home and recoup as much capital as possible.

As you can imagine, this is a less than desirable situation to find yourself in. But are there ways to ensure that you don’t have to answer:

  • When I put my house for sale do I still have to pay the mortgage?
  • What happens to your mortgage when you sell your home?
  • What happens to the mortgage when you sell?
  • What happens when you sell a house with a mortgage?

Because you have to pay off the mortgage of your home, or pass on the debt to someone else, there’s no escaping it. This means you need to make sure you get the most for your property when you sell it.

Making sure you get the most out of the resale 

There’s a lot you can do to ensure that you’re not stuck in a tricky short-sale situation. These include:

Check the market

In real estate there are two main markets to be aware of: if you’re currently in a seller’s market you want to sell.

In a seller’s market, there is a low inventory of real estate with high interest from multiple buyers. This puts the seller at an advantage.

With homes selling faster than the average list median, buyers can land up having to compete for properties. In this type of market, some buyers will spend more on a property. This is what you need if you’re short on your outstanding mortgage amount.

When it’s a buyer’s market this is the opposite of a seller’s market. Where before there was limited stock, now there’s a lot of housing inventory. And buyers have become rarer, and there’s now a shortage of interested people shopping for homes.

These factors give buyers more leverage over the sellers listing their properties. As real estate prices decrease, and homes are on the market for longer, sellers can tend to give in to low ball offers. This isn’t a market you want to enter if you’re looking to maximize your return on investment.

Your lender will also factor this in if you have spoken to them already.

Markets can be seasonal

When it comes to the best time to sell a house, there are a number of factors that affect the market.

Most buyers are active during the summer months. In fact, the trend is to buy aggressively during these months – good news for you. There are multiple ideas why this happens but mostly it’s due to the fact most families would prefer to not take their children out of school before the year ends.

As a seller with an outstanding mortgage, you’ll want to move on this. You want to sell your home when everyone is looking to move.

Also, as a seller, you want to be able to cash in on the peak market, when everyone’s getting involved and pushing up demand and prices.

But as a rule of thumb, you want to make sure that you’ve listed your home during June, July, and August. So, if you were wondering, “When does the housing market pick up?” you have your answer.