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Selling a home before paying off the mortgage

Selling a home is a significant decision, often accompanied by many questions and concerns.

One common misconception many homeowners have is whether they can sell their property if they still have an outstanding mortgage.

The good news is that selling a home with a mortgage is entirely possible, and millions of homeowners do it each year.

Myth #1: You Can't Sell a Home With an Outstanding Mortgage

One of the most pervasive myths about selling a home is that you must fully own the property before putting it on the market. Thankfully, this is not the case. Having an outstanding mortgage does not prevent you from selling your home. Most home sellers in the real estate market have an active mortgage at the time of the sale.

Myth #2: You Must Pay Off the Mortgage Before Selling

Some homeowners believe they must pay off their mortgage before selling their property. While paying off the mortgage upfront can have advantages, it's not mandatory. When you sell your home, your mortgage balance will get settled through the proceeds from the sale.

Myth #3: Selling With a Mortgage Will Scare Off Buyers

Another common misconception is that potential buyers prefer to purchase a property with an existing mortgage. In reality, most buyers are not deterred by this fact, as it is standard practice in the real estate market. Buyers are primarily concerned with the property's condition, location, and market value rather than the seller's mortgage status.

What Happens When You Sell a Home With An Outstanding Mortgage?

When you sell a home with an outstanding mortgage, several steps are involved to settle and complete the sale. Here's what typically happens:

Sale Proceeds: The buyer will pay the agreed-upon purchase price when you sell your home. These funds go into an escrow account managed by the closing agent or title company.

Mortgage Payoff: You can settle the outstanding balance once the sale is complete. The closing agent or title company will use the proceeds from the sale to pay the mortgage with your lender. This process ensures that the lender receives the remaining balance on your mortgage.

Satisfaction of the Mortgage: After the paid mortgage, the lender will provide a "Satisfaction of Mortgage" or "Release of Lien" letter. This document confirms that you no longer have a mortgage and that the lender has no claim on the property.

Closing Costs and Fees: During the closing process, various fees and expenses related to the sale and the mortgage payoff will get deducted from the sale proceeds. These may include real estate agent commissions, title search fees, recording fees, and other closing costs.

Remaining Proceeds: After settling the mortgage and deducting all necessary fees, any remaining funds from the sale will be yours as the seller. This amount represents your net proceeds from the sale.

Deficiency or Surplus: You sometimes need more than the sale proceeds to cover the outstanding mortgage balance. This situation is called a "shortfall" or "deficiency." If this happens, you may still owe the lender the difference. On the other hand, if the sale proceeds exceed the outstanding mortgage balance and all closing costs, you will receive the surplus amount.

Release of Ownership: After everything happens, ownership of the property transfers to the buyer. The buyer will receive the title to the home, and you will no longer have any legal or financial ties to the property.

Selling a home with an outstanding mortgage is a common and achievable feat. The key is to dispel the myths surrounding this topic and approach the process with the correct information and guidance.

A mortgage shouldn't discourage you from selling your home when the time is right. If you have questions or need assistance from a professional, call (703) 346-2776 or email Dan@greetingsvirginia.com.