How Does Selling a House With a Mortgage Work in Maryland?
Many homeowners assume they must completely pay off their mortgage before they can sell their property. In reality, selling a house with a mortgage is extremely common in today’s housing market.
Most people list and sell their homes while still carrying a mortgage. The process involves knowing your exact mortgage payoff, calculating equity, handling required paperwork, and preparing for closing.
This guide breaks down the essential steps of selling a mortgaged home, including financial considerations, payoff calculations, and strategies to maximize your profit.
Can You Sell a House If You Still Have a Mortgage?
Yes—you can absolutely sell a house while still paying off your loan. In fact, the majority of American homeowners do just that. Because most mortgages run for 30 years, but homeowners move every 10–12 years, many homes are sold before the mortgage is fully paid.
The process begins by asking your lender for a mortgage payoff statement, which tells you the exact amount needed to settle your loan at closing. This figure differs from your current loan balance because it factors in daily interest until the projected closing date.
Your home equity also plays a critical role. Equity is the difference between your home’s current market value and your outstanding mortgage balance. Equity builds in two ways:
Market appreciation (if your home’s value increases over time)
Earned equity (through your down payment and monthly mortgage payments)
Financial Considerations When Selling a Mortgaged Home
Selling a home with a mortgage affects your bottom line. You’ll need to calculate both your potential profits and the costs of selling.
Typical Selling Costs Include:
Real estate agent commission (usually around 6%)
Escrow fees and title insurance
Prorated property taxes and HOA dues
Settlement of any second mortgages or liens
If your home’s market value is higher than your payoff amount, you’ll walk away with profit. However, if your loan balance is greater than your sale price (being “underwater”), you may need to consider alternatives like a short sale or loan modification.
Tax Implications
Taxes also come into play. Depending on your location, you may need to cover prorated property taxes until the closing date. If you sell at a loss, certain forgiven debt could be treated as taxable income. It’s always best to consult with a tax professional before finalizing the sale.
Understanding Your Mortgage Payoff
Before listing your home, get clarity on your exact payoff amount.
Payoff Statement – Request this from your lender. It’s typically valid for 10–30 days.
Prepayment Penalties – Some loans charge a penalty if you pay off your mortgage early (often in the first 3–5 years). Always check your loan terms.
Due-on-Sale Clause – Almost all mortgages require the loan to be paid in full once the property transfers ownership. The lender will be paid first at closing, and you’ll receive the remaining balance as profit.
Preparing Your Home for Sale
Even with a mortgage, preparing your home properly can boost its value and attract buyers.
Must-Do Preparation Steps:
Make small repairs and upgrades (fixtures, cabinet handles, paint)
Declutter and deep clean for a move-in-ready look
Improve curb appeal with landscaping
Remove personal items while keeping a welcoming feel
Pricing Your Home Correctly
Your listing price should cover your payoff amount, potential closing costs, and still be competitive. A real estate agent can provide a comparative market analysis (CMA) to set the right price and position your home for multiple offers.
Selling Options: Choosing the Right Path
You can sell your house in different ways depending on your priorities.
Through a Real Estate Agent – Offers professional marketing, pricing strategy, and negotiation expertise.
For Sale By Owner (FSBO) – Saves on commission but requires more effort, paperwork, and negotiation.
Selling to an Investor or iBuyer – Faster, but usually at a discounted price.
Full disclosure of existing liens (HELOCs, tax liens, or second mortgages) is essential to avoid legal issues during the sale.
Managing the Closing Process
Closing is where everything comes together: your loan is paid off, funds are distributed, and ownership is transferred.
Common Seller Costs at Closing:
Agent commission (about 6%)
Escrow fees, property taxes, HOA dues
Buyer credits or concessions (repairs, inspection costs)
Title fees or search costs (sometimes negotiable)
Once the lender and liens are settled, you’ll receive your net proceeds via wire transfer or check. This becomes the profit you can use for your next move.
Planning for Your Next Home Purchase
If you plan to buy another house while selling, you’ll need to consider financing options:
Bridge Loan – A short-term loan that uses your current home’s equity to fund a down payment for your new home before selling.
Simultaneous Buy & Sell – Lenders look closely at your debt-to-income ratio and credit score when you carry two mortgages.
Some sellers rent back their homes temporarily after closing to ease the transition, while others use their sale proceeds for a larger down payment on their next property.
Conclusion
Selling a house with a mortgage is not as complicated as many believe. With careful planning, accurate payoff information, and the right real estate agent, you can sell smoothly and maximize your profit.
By understanding your equity position, closing costs, and payoff requirements, you’ll set realistic expectations and feel confident throughout the process. Whether you’re upgrading, downsizing, or relocating, a mortgaged home sale can open doors to your next chapter in real estate.
