Paying Off Your Mortgage When You Sell

Selling your home takes care of a lot of things — but what about the mortgage? It doesn’t transfer to the buyer, and it doesn’t just disappear.

The payoff process is usually more straightforward than you’d expect. Most mortgages are paid at closing using proceeds from the home sale — with certain exceptions. Understanding how the process works beforehand can help you avoid unwanted surprises.

Here’s what you need to know.

What You May Owe

Request a mortgage payoff statement to determine the exact amount needed to satisfy your loan at closing. This amount will include the remaining principal balance, accrued interest and any applicable fees. Prepayment penalties may also apply (usually within the first three years of a mortgage).

Knowing exactly what you owe also allows you to accurately estimate the amount you’ll receive after all debts are settled. This can help reduce uncertainty and can make financial planning easier.

How Your Mortgage Is Paid Off

At closing, the title/escrow company uses proceeds from the sale to pay the mortgage in full. Any associated costs are paid as well, including agent commissions, title fees and unpaid property taxes. Once all obligations are settled, the remaining balance goes to you.

Closing typically takes 30 to 60 days. However, if there’s not enough equity in the home to cover the mortgage payoff, additional steps and time may be required. Options include paying the difference in cash or staying in the home (or renting it out) until adequate equity accumulates.

If you’re facing financial hardship, you can also request a short sale. If approved, the home sells for less than what’s owed, and the sale proceeds are accepted as payment in full. A short sale isn’t usually ideal, but it typically does far less damage to your credit than a foreclosure — and it can help you qualify for a new mortgage sooner.

Any questions? To discuss your financing options, reach out today.