These days, most people don’t end up staying in their homes until their mortgage is fully paid off, which can lead many sellers to wonder if they can sell their home when they still owe money. The simple answer is yes, but if you’re one of those sellers, keep reading. Below is an explanation of what happens to your mortgage when you sell your house.

What happens in a typical sale

Put simply, in a traditional sale, you should be able to sell your home for more than what you currently owe on your mortgage. If you’ve been paying down your mortgage over the years, you’ll have built up equity in your home, which you can cash in on when you sell.

When a home goes to closing, between the down payment and the mortgage loan, the buyer brings funds to settlement that are equal to your home’s sale price. Those funds are then used to pay off the following:

  1. The remaining amount of your mortgage
  2. Any home equity loans or HELOCs that you may have
  3. Your closing costs (agent commissions, taxes, etc)

If there’s any money left after those debts are paid in full, the remainder is paid out to you as a profit. You can then use those funds to finance the down payment on a new home or however you see fit.

What happens in a short sale

A short sale occurs when the home is worth less than what you currently owe on the mortgage. Here, as the owner, you’d have to talk to your mortgage company and ask them to accept a loss since the proceeds from the sale of the home will be less than what they are owed.