What Happens to Old Home Loans When Selling a House?
Selling your home with a mortgage? Learn what happens to old home loans when selling a house, including payoffs, equity loans, and more.
If you’re a first-time homeowner who is now becoming a first-time home seller, you may have a question you hadn’t considered too deeply before: What happens to old home loans when selling a house?
What if you have more than one loan attached to the property, like a home equity loan or HELOC? Who handles the logistics and timing of getting these loans sorted before your home sale closes?
In this post, we’ll show you how selling a house with a mortgage and other loans typically plays out so you know what to expect.
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What happens to old home loans when selling a house?
When you sell your home, any remaining loan balances must be paid off at closing. Typically, your mortgage, home equity loan, or any liens against the property are settled using the proceeds from the sale.
If the home sells for more than what you owe, you’ll receive the difference. If you owe more than the home is worth, you may need to bring cash to the table or explore options like a short sale.
To illustrate how this all works, we’ll present four real-world examples based on a median-priced home of $415,000.
Example 1: Selling a house with a mortgage
Most homeowners sell their house before their mortgage is fully paid off. In this case, your lender will be paid directly from the sale proceeds. Here’s how that might look:
- Home sale price: $415,000
- Remaining mortgage balance: $252,505 (average mortgage debt)
- Estimated closing costs: $25,000 (estimating 6% of the sale price)
- Net proceeds after mortgage payoff and closing costs: $137,495
In this scenario, after paying off the mortgage and covering closing costs, the seller walks away with about $137,495 in profit. These proceeds are often used as a down payment on a new home.