Key Takeaways
- It’s normal to sell a home while you still have a mortgage
- Get a payoff statement to know what it costs to repay the loan
- Figure out your home value to set a fair price
You might have loved your home when you purchased it, but now it’s time to move. Perhaps you’re looking for a bigger home or relocating for a job. In any case, while you sell your home you’ll still need to keep paying the mortgage.
Fear not – a little knowledge makes the process more manageable.
How? You’re going to use the money you make from selling your home to pay off your mortgage and closing costs. Chances are you’re also hoping to use the money from the sale to buy your next home, too. There are just a few things you’ll want to think through to fully prepare.
1. Get your payoff statement
The first thing to know before you sell is how much it will cost to pay off your mortgage.
To find out, request a payoff statement from your lender. This is a document that includes all the interest and fees associated with full loan repayment. Asking for a payoff statement does not mean you have to sell or do anything; it just gives you up-to-date information and payoff instructions.
A payoff statement is different from your mortgage balance. Looking at your monthly mortgage statement will not give you an accurate number, because it doesn’t include all the costs that go into a full repayment.
In addition to the principal balance remaining on your loan, the payoff statement will include the daily interest expense through the date you pay off the loan, and any unpaid late fees or other account charges assessed by your lender. Although they’re not too common anymore, if there’s a prepayment penalty associated with your loan, that will also be noted on the statement.
Pro tip: Your mortgage payoff amount will change a bit from month to month (even with a fixed-rate loan). You’ll want to get a fresh payoff statement once you know your closing date to have the most accurate number.
2. Figure out your home value
Next, you’ll want to know what your home is currently worth and how much you can expect to make when you sell it. We always recommend working with a trusted real estate agent for this process. Your agent will have valuable insights into what’s going on in the market and will often be able to provide a broker price opinion (or BPO). A BPO is a real estate professional’s estimate of a property’s value, backed by the selling prices of comparable homes in comparable neighborhoods.
You can take a look at any of the real estate listing sites on your own to find out what comparable homes are selling for in your immediate area. You’ll get the most accurate info by identifying homes similar in size, age and condition to your home.
Additionally, you can estimate your home value by plugging your property details into an automated valuation model (AVM). An AVM is a computer program that gives you a ballpark figure on the value of your home. It does this by comparing your home to others in its database with similar statistics.
There are several free AVM tools online, but use them with caution: your results are not guaranteed to be accurate.
3. Sell your home and pay off your mortgage
Now that you know how much it will cost to repay your mortgage, and roughly what you can sell your home for, all you have to do is sit back and wait for the offers to come in, right?
Not quite. On average, expect to pay between 7%-10% of your home’s value in fees.
Those fees go toward paying commission to your real estate agent (typically 4-6% for this alone), paying attorney’s fees, notary fees, filing fees, title-related fees and other closing costs, such as potential repairs you may have to make between offer and closing. You may also pay property and transfer taxes, depending on your state.
Understanding these costs empowers you to make informed decisions about when to sell and what concessions you may be willing to make for the right buyer. By understanding the total cost of selling your home, plus the cost of paying off your mortgage, you can know whether a buyer’s offer will turn out to be profitable for you.
| If your mortgage payoff is… | and your cost to sell is… | and you sell the home for… | Your net profit is… |
|---|---|---|---|
|
$250,000 |
$30,000 |
$300,000 |
$20,000 |
|
$100,000 |
$30,000 |
$300,000 |
$170,000 |
The above scenarios are for illustration purposes only and do not account for appreciation.
Once you know your payoff, have determined a fair price for the home, and know what you have to make from the sale to cover your costs, you’re ready to sell.
Profit from higher property values
Over time, property values tend to rise. This is called appreciation, and it works in your favor by allowing you to sell your home for more than you bought it – possibly a lot more.
Also, by paying your mortgage on time every month, you’ve built up home equity, increasing your profit potential.
Selling your home while you’re still paying a mortgage can feel daunting, but now that you know what to expect, you can make a realistic plan to sell — and hopefully, profit. It’s very common for people to sell their homes while they’re still mortgaged, and you can, too.
Ready to sell? We can answer questions about the process and help you prepare to buy a new home.