Can you sell a house with a mortgage? The short answer is, “Yes, you can.” But that’s not the important question.

What you should be asking is, “Should you sell a house when you still have a mortgage?” After all, selling a house with a mortgage could give you the boost you need to achieve financial freedom. Or, it could mean your utter financial ruin.

In other words, this question doesn’t get a short answer.

That’s why we’ve written you this guide: to explain just what happens when you sell a house that’s still in mortgage. This will help you understand when it’s a good idea to sell your mortgaged house, and when it’s not.

So before you resolve to sell your house, read this guide and heed it well.

What Happens to Your Mortgage When You Sell Your Home?

This is the tricky part. The ideal situation is that your mortgage gets paid off in full when you sell your home. Here’s the breakdown of where the buyer’s money goes when your home is sold.

The Mortgage Balance

Remember, since your house is mortgaged, that means it’s still technically owned by the bank until the mortgage is paid off. So, first, the buyer’s money pays any balance left on your mortgage plus any associated fees.

Probably the most important fee to consider is a prepayment penalty. That is, some lenders add a penalty fee for paying off your mortgage early. Always check if this applies to your mortgage before you sell.

Money Borrowed Against Equity

Next, the sale pays off any money borrowed against your equity in the home, like a home equity line of credit or home equity loan. (Your equity is any amount you’ve invested in your home. This includes home improvements and payments to your mortgage premium.)

Closing Costs

After this, closing costs, taxes, agent commission, escrow fees, and any other fees relating to this transaction are paid.

Your Bank Account

If the purchase price covers all of these expenses, anything left over goes into your bank account. Most sellers use this equity as a downpayment on their next home.

What’s the Catch?

It sounds like a great deal, doesn’t it? If selling your home puts a check for $50,000 in your pocket, why not go for it? What’s the catch?

The catch is the word, “if.” Specifically, “if” all the above costs aren’t covered by the sale price, you’ll be the one writing checks for thousands of dollars.

So here are the most important things to consider before selling your house.

Prepayment Fee

Find out if you’ll have to pay a prepayment penalty and the exact amount.

The Current Housing Market

Is it a buyer’s or seller’s market in your area right now? How much are you likely to get for the house? Is it less than you paid and/or more than you still owe on your mortgage?

These questions should tell you right away whether selling is worth it or if you’ll lose money on the deal.

Your Equity

Find out how much equity you’ll actually be getting back. Start by determining how much of your mortgage is still unpaid and subtract this from the likely sale price. Also, subtract any money you’ve borrowed against your equity.

Closing Costs

If you can get a close estimation of the likely closing costs, do so. Either way, assume thousands of dollars will go to these.

Can You Sell a House With a Mortgage?

Can you sell a house with a mortgage and come out ahead by thousands of dollars? Now, thanks to this guide, you know that you can.

But that’s only if you heed the sound financial advice and grave warnings we’ve provided you. If you’re thinking about selling a house with a mortgage, carefully apply what you’ve learned here today. Also, if you think it can help something else, share us on social media.