Can You Sell a House with a Mortgage In California?

As per the National Association of Realtors (NAR), homeowners typically reside in a property for around eight years before deciding to relocate or acquire another estate. Considering that mortgages commonly span 15 or 30 years for repayment, NAR’s statistics indicate that homeowners often relocate prior to fully settling their outstanding loan. But is this feasible? Can you vend a property prior to completing its mortgage payments?

Vending a property before fully paying off its mortgage is quite typical. You can collaborate with a real estate agent or opt for a cash offer for a speedier transaction. Typically, the proceeds from the property sale are utilized to settle the loan. If the property possesses sufficient equity, you may still pocket a portion of the proceeds post settling your mortgage obligation.

Can You Sell a House With a Mortgage in California

Curious to delve deeper into selling your property with an outstanding mortgage? Explore the remainder of this piece! Detailed guidance on selling your property awaits, along with responses to frequently asked questions concerning selling a property with an ongoing mortgage.

Yes. You can sell a house with an outstanding mortgage balance and use the sales proceeds to pay off the loan balance. 

However, this is only possible if your house has enough equity. If it doesn’t and you are underwater, you still have to cover the difference between the sales and the outstanding mortgage balance. You’ll also have to pay for the closing costs. This means you won’t be able to take home anything after the sale.

When you sell a home with a mortgage, you don’t automatically wipe out what you owe. Wondering what happens to your mortgage when you sell your house? Here’s the gist:

You need to settle your remaining mortgage amount completely after the sale. Depending on your loan terms, you may face an early payment fee or prepayment penalty. This fee is typically applied if you pay off your mortgage early.

While the Dodd-Frank Act bans prepayment charges, certain mortgages are exempt from this regulation.

What Happens to Your Mortgage When You Sell Your Home In California

Before you sell a house with a mortgage, there are three crucial actions you have to take to ensure that the proceeds of the sale are enough to pay off the loan and provide you with some take-home cash.

What to Do Before Selling a House With a Mortgage In California

Contact Your Mortgage Lender to Determine the Remaining Loan Balance

Your financier must give you a document called the payoff statement or payoff quote, as per rules set by the Consumer Financial Protection Bureau.

This document tells you how much you must pay to completely pay off your mortgage, instructions on how to pay, fees for late payments, etc.

Normally, the total amount you need to pay off your current mortgage includes the interest you’ve accrued until now. When the sale goes through, your escrow company will request your mortgage lender to provide an updated payoff statement with the latest payout amount.

Can You Sell a House With a Mortgage In California

Getting a copy of the payoff statement is crucial so you understand how much of the home sale proceeds will be used to clear your debt. This knowledge can impact your decision to sell your house and purchase a new one.

After you learn about the payoff amount of your mortgage, you also need to estimate the value of your home

There are many online tools that can help you do this– they are based on an Automated Valuation Model (AVM). For a more accurate home value estimate, however, you can ask a professional to conduct a CMA or comparative market analysis.

A CMA analyzes your home value based on comparable homes in your area that have recently sold. 

Once you know the payoff amount and the market value of your home, you can then proceed to calculate your estimated net proceeds when you sell your home.

Whether or not the home sale will gain you profit will depend on your home’s equity. This will also help you set a fair listing price.

Equity represents your ownership interest in your property. It’s the cash you pocket when you sell your house. This cash can rise due to different factors, but typically, it goes up through property investments and returns from upgrades.

  • Home Investment Equity: This is the equity you gain from your financial investment in your home. This may include your down payment when you bought the property, mortgage payments you made each month, and the cost of upgrades you made to the house.
  • Earned Equity: This equity is brought about by market conditions. For example, when the home value in the local real estate market increases and your property appreciates. This may also be the result of extra upgrades you’ve done to the property in order to gain ROI.

If your property holds substantial equity, you may pocket some cash even after settling your mortgage debt. But lacking enough equity could leave you in a deficit.

When figuring out your potential profit or equity, subtract your mortgage balance, estimated closing expenses, and agent fees from your home’s market value, especially if you choose the conventional path.

Opting for a cash sale eliminates agent fees and typically covers closing costs. More details on this follow in the next section.

There are two main ways to sell your house if you owe money due to an existing mortgage— get a cash offer or sell with the help of real estate agents. This portion of the article details the process of selling through these two options to help you decide which suits your goals better.

How do you sell a house with a mortgage in California

Getting a cash offer from a property investor or a cash buyer is possibly the quickest method to sell your property with an unpaid mortgage. As cash buyers cut out lenders, the sale may conclude in as little as seven days.

Selling your property to a cash buyer also means you won’t need a real estate agent. Essentially, you’ll avoid paying commission fees and bypass open houses. Additionally, cash buyers handle closing costs and related fees tied to the property sale, ensuring you get the precise amount they propose after deducting your remaining mortgage.

If you are interested in getting a cash offer, here’s the simple process you have to go through:

First off, you have to request an offer from the cash buyer or investor. You may do this by calling them or filling out a form on their website. Note that when asking for a cash offer, you should disclose that your house still has an unsettled mortgage.

Once a request for an offer is made, the majority of all-cash purchasers arrange a property inspection. This step is crucial to assess the present condition of the property, including any required repairs, in order to determine an appropriate offer. It resembles the process real estate agents undertake when conducting a Comparative Market Analysis (CMA) to establish a suitable listing price, albeit without subsequent showings or open houses. Following the investor’s walkthrough, anticipate receiving an offer within 24 hours.

If you are happy with the offer, you can accept the cash buyer’s offer by signing the contract via email. You have to review and sign the contract to confirm you agree with the terms. This will make the home sale official.

After you sign the contract, we’ll pick a closing date together. If you’re paying in cash, you may have more flexibility on when you move out. Just let us know when works for you, whether it’s a few days or a few weeks.

Once closing is set, a title search will be conducted and other possible issues preventing the sale will be addressed. 

On the closing day, you won’t have to worry about the closing fees – the cash buyer will cover them. If you have a mortgage, the lender’s representative might be there to collect the rest of what you owe. Then, the rest of the money is yours to take home.

Sell with the Help of a Real Estate Agent

The other route you can take when selling a home with a mortgage is to sell with the help of real estate agents. Since this sale process is traditional, expect it to be longer and more expensive.

Sell with the Help of a Real Estate Agent In California

Many homeowners opt for conventional selling methods to maximize property profits. However, timing plays a crucial role in this endeavor. Selling during the winter might not yield optimal results due to lower market activity.

Furthermore, the listing price of the property needs to be appealing to attract potential buyers. It’s essential to prepare the property for sale by staging it properly, which includes applying a new layer of paint and fixing any damages. Following this, effective marketing strategies should be employed, along with scheduling open houses and viewings.

It can take months to years to reach the closing table in a traditional home sale, which means the seller would still have to pay monthly mortgage payments until the house is sold on top of the selling expenses. Not everyone has the luxury of affording all of the holding costs.

In contrast to a cash deal, the seller must fork out 6% for agent fees, in addition to closing expenses. After that, the outstanding mortgage amount gets deducted. Whatever’s left becomes the seller’s net profit from the property sale.

Can You Sell a Mortgage Property with Negative Equity?

“Being underwater on your mortgage happens when what you owe exceeds what your property is worth. You could still offload your property with negative equity, but you’d need to cover the gap between what’s left on your mortgage and what you get from selling, likely dipping into your savings.

If you can’t cover that gap, it’s smarter to keep hold of the property for now, hoping its value goes up. That way, when you eventually sell, the sale proceeds can fully pay off the mortgage and even leave you with some cash.”

Sell House As-Is In California

Time might be crucial, and waiting for the local real estate market to get better may not be an option. In such a situation, you may think about a short sale.

A short sale happens when your mortgage lender says okay to receiving less money than what you owe. Basically, you have to persuade them to say yes to the sale and acknowledge that this choice can harm your credit score.

Usually, short sales can impact your mortgage choices down the line for a while. However, this is preferable to losing your home to foreclosure when you look at it financially.

Yes. You still have to settle your monthly mortgage payments while you are preparing your house for sale or while it is currently listed to avoid the accumulation of more interest.

Putting your house on sale won’t stop the mortgage company from asking you for payments. It’s only until you pay off your full mortgage that your monthly payment stops.

You can list your property with a mortgage anytime, except during foreclosure auctions. If you decide to sell shortly after moving in, that’s fine. But don’t count on its value going up so soon.

If you must sell quickly because of a move or divorce, consider selling to a cash buyer for a speedy sale. They can close in just a few weeks.

Nope, you can sell a mortgaged house without a real estate agent. If you go for a cash offer, you’re dealing straight with the buyer. That means you don’t need an agent, and you don’t have to cough up agent fees.

But if you feel uneasy about selling sans agent, you can bring one on board to steer you through the sale.

Would You Still Pay Closing Costs When You Sell Your House With an Existing Mortgage?

If you sell your house with a mortgage through a cash buyer, you can avoid paying closing costs, as they usually handle that. However, if you opt for the traditional route with a real estate agent, you’ll be responsible for covering closing costs, which may entail:

  • Settlement or Closing Fee to Title Company: This is a fee to the title company to pay for all administrative costs of the closing.
  • Notary Fee: This is required if you did a virtual closing where a notary comes to you to sign the closing documents.
  • Real Estate Agent Commission: Typically, the commission fee the seller has to pay at closing is 6% of the total home sale. This is split between your listing agent and your buyer’s agent.
  • Owner’s Title Policy: To show good faith, the home seller typically pays for this policy even though the buyer would be the one who’ll benefit. The owner’s title policy protects the buyer from possible legal claims to the property in the future.
Would You Still Pay Closing Costs When You Sell Your House With an Existing Mortgage In California

In addition to those listed, typical closing expenses for a standard property sale might cover charges for a title search done by the title firm, home inspection, property valuation, land survey, credit check, legal counsel fee, recording charge, transfer taxes, etc.

Many homeowners take out a HELOC to pay for some expenses of homeownership. The HELOC is paid at the same time you pay off your mortgage after the sale.

To put it simply, if a mortgage property is also attached to a HELOC, both your mortgage and HELOC loan balance would be settled before you take home what’s left of the sale.

Whether you can get two mortgages depends on your income and real estate plans.

Usually, lenders check your debt-to-income ratio (DTI) to decide if they’ll approve another mortgage. DTI compares your total monthly debt payments to your monthly income and ideally should be 45% or less for you to qualify for a second mortgage.

Remember, this 45% includes all your debts like credit cards, car loans, etc.

The majority of home sellers are trying to sell a home and buy another at the same time. This is not uncommon. However, what happens to the mortgage depends on which real estate transaction reaches closing first.

When you sell your home before buying another, you avoid double mortgages and keep things simpler. You get the money from the sale, pay off your old mortgage, and use the rest for the down payment on your new home. The sale usually gives you enough money to make a big down payment and skip private mortgage insurance.

If you’re purchasing a new property but haven’t finalized the sale of your current one, you’ll likely need to use your savings for the down payment.

This situation also arises when the funds from selling your home only cover the remaining mortgage balance, leaving nothing for you.

To ease the process of buying a new property before your old one sells, consider these suggestions:

  • HELOC: HELOC is a line of credit that is secured by your previous home’s equity. If your old house is not yet on the market, you can get a HELOC loan and use it as a downpayment for a new home.
  • Contingent Sale: You may want to put a contingent offer on the property you mean to buy if the seller permits. This means your purchase of a new home won’t close until you sell your last home.
  • Bridge Loan: Even though this can be a huge financial burden, many homeowners find themselves taking out a bridge loan. This is a temporary loan you can use as a downpayment; however, you have to pay it monthly or according to the terms of the lender. This means that while waiting for your home to sell and buying a new one, you will make payments for this loan as well as your existing mortgage.

What Happens to the Mortgage Lender Escrow Money When You Sell?

Typically a buyer will put a percentage of their offer into escrow to show they are serious about purchasing your home. If the sale falls through, the seller gets to keep this money. If the sale closes, the buyer pays the offer amount minus what they already put into escrow. Either way, the escrow funds will be released to the seller.

What Happens to the Mortgage Lender Escrow Money When You Sell in California

The solution hinges on your outstanding balance with the lender. If the sale’s earnings cover your mortgage and yield surplus cash, you can use it for a new home’s down payment. But if your debt surpasses the sale’s proceeds, you won’t have funds for a down payment.

Your net deposit reflects what remains after settling the mortgage, title company, and real estate agent fees (if you opt for a conventional sale).

Selling your house with a mortgage is incredibly common. In fact, most homeowners do this in order to pay off their loans and settle the downpayment of another property.

It is, however, crucial that a homeowner calculate their net proceeds after the sale to determine whether selling the house with a mortgage is a good idea. It’s important to make sure there is enough equity built up and to still earn money after paying their debt.

If you are looking into selling your house with a mortgage, don’t hesitate to contact us at JiT Home Buyers. We’ll give you a fair offer so you can settle your mortgage and move on to a new home.

Fill out our form below or call us at (510) 473-5885 to learn more about selling your house with a mortgage.

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We Buy Houses AS-IS In California

We are a local real estate investment company in California that buys houses in any condition. We also buy mobile homes and condos in any condition. You can sell your house fast for cash regardless of the condition.

Our service area includes homes in San Francisco, San Jose, Sacramento and throughout California. Our goal is to serve homeowners with a simple solution when selling there house fast.

You can start the process to sell your house fast by calling us or filling in the online form. We will respond back to you the same day and present you with a fair cash offer for your house. If you accept our cash offer for your home, you can schedule a closing date and get cash for your house.

The Easiest Way To Sell Your House Fast In California

You’re in the driver’s seat when you accept our cash offer for your house. We make the process simple, fast, and easy to follow when working with us. You have no obligation to accept our cash offer for your home when contacting us for a fair cash offer for your home. No matter the reason you want to sell your house, we want to buy your home as is. Remember that you get many benefits that include no real estate agent commissions, no cleaning, no improvements, and no stress. Our cash offer for your as-is house assures you of fast cash payment at closing with a reputable Title company. You can count on our company to give you a fair cash offer for your home! If you’re still thinking, “I need to sell my house fast”, calling us could be your best decision all day. 🙂

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Author: Saini

My name is Saini, and I founded the JiT Home Buyers team with years of experience in the real estate industry. I have assisted numerous sellers in selling their homes quickly, “AS-IS”, and for a fair price.

He’s been featured in multiple publications including Yahoo Finance, GoBankingRates, LegalZoom, The Mortgage Report, Apartment Therapy, US News and World Report, and SuperMoney among others.

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