Can I Sell My House If I Have a HELOC?
As interest rates drop and more homeowners are planning a move, it’s becoming a common question: Can I sell my house if I have a HELOC? The good news is that selling a house with a HELOC is possible and even common, but there are some factors to consider and pitfalls to avoid.
In this guide, we’ll walk you through what happens to your HELOC when you sell and provide real-world examples to help you understand the process.
Can I sell my house if I have a HELOC?
Yes, you can sell your house even if you have a HELOC. When you sell, your HELOC is treated as a lien, similar to your mortgage. This means that both your mortgage and the HELOC (a second mortgage) will need to be settled at closing using the proceeds from the sale. The funds will first go toward paying off your primary mortgage, and any remaining balance will address the HELOC.
Selling with a HELOC requires an understanding of how it impacts your closing, but you can still go forward with your plans to sell. Next, let’s take a look at exactly what happens to your HELOC during the sale process.
What happens to my HELOC when I sell my house?
When you sell your house, any outstanding balance on your HELOC must be paid off at closing. The title company or closing agent will handle this payoff by using the proceeds from the sale to clear the HELOC balance, effectively closing out the account.
However, if there isn’t enough equity from the sale to cover the HELOC in full, you’ll need to bring additional funds to the closing table to cover the difference. Additionally, because your HELOC will be paid off all at once, you might face early termination fees or prepayment penalties, depending on the terms of your line of credit.
Let’s look at an example to illustrate how selling with a HELOC might work.
Example 1: Selling a house with a HELOC
Let’s consider an example scenario using a $420,000 home in which the sale proceeds are sufficient to cover both your mortgage balance and your HELOC debt.
Your home’s selling price: $420,000.
Your remaining mortgage balance: $200,000
Your HELOC balance: $60,000
When the house sells, the $420,000 proceeds go toward paying off the $200,000 mortgage first. This leaves $220,000. The next step is to pay off the HELOC, which would deduct an additional $60,000, leaving you with $160,000 in proceeds after these equity-backed debts are settled.
Of course, you would also need to pay any required closing costs and agent commissions attached to the home sale.
Example 2: Selling a house with a HELOC
Now, let’s consider a scenario where the debt exceeds the property’s sale value. Suppose your home has some unrepaired damage and only sells for $375,000, and you have higher mortgage and HELOC balances.
Your home’s selling price: $375,000
Your mortgage balance: $300,000
Your HELOC balance: $80,000
In this case, the $375,000 proceeds would cover the $300,000 mortgage, leaving $75,000. However, since the HELOC balance is $80,000, there would be a shortfall, requiring you to bring $5,000 to closing to satisfy both debts — along with any additional funds needed to cover closing costs.
