Most people don’t realize they don’t actually own their homes. The bank owns your house until you’ve successfully repaid your entire mortgage.

But you can sell your home even without owning it free and clear. What happens to your mortgage when you sell your home?

In a sense, it magically disappears. Take a look at this overview of selling a house with a mortgage.

What Happens to Your Mortgage When You Sell Your Home?

Mortgage lenders give you access to a large loan because the house you move into is worth at least the value of the loan. If you’re ever unable to repay your debt, the lender can simply sell the property to make up the loss.

But no lender ever wants this deal. This is why lenders are only willing to loan money to qualified borrowers.

There’s a long underwriting process that involves examining your debt and income to determine whether you can afford the monthly payments. The lender agrees to put all the title information in your name at closing even though you technically are still obligated to pay the full amount of the loan.

Why are lenders willing to do this? The answer is simple.

They don’t want the house. They want the homeowner to feel and act responsibly regarding the property.

When you feel a sense of obligation to the house, you’re less likely to walk away from your debt.

Selling a Home

Selling a home is typically the process of finding a buyer willing to pay the home’s current market value or higher. In a healthy real estate market, this means their buying price covers the cost of your mortgage loan plus an additional profit.

In these cases, the amount of your mortgage loan is covered by the buyer’s mortgage loan. The check paid to you goes in part to your mortgage lender and in part into your bank account.

Once your mortgage company gets its money back, you get to keep the remaining money as profit. This money can be used to buy a new property, cover debt, or to make other investments.

What If I’m Upside Down?

There are some situations where you owe more on your house than its current market value. This is one way of saying you’re upside down on your mortgage loan.

Selling your property won’t get your finances back in order. Once you sell your home to a buyer, you’ll then need to pay the difference out of pocket.

This is a huge setback, but still might be the best bet if you’re in a declining real estate market. Sometimes you’ll be selling my property as is to cut back on repairs that cut into your profits.

This scenario requires the buyer to do their own inspection to make sure the deal is worth it for them.

Selling a House with a Mortgage

You need to consider how much you want to profit when selling a home. What happens to your mortgage when you sell your home?

The answer is: you either win or lose. Make sure you have a strategy in place to get the most out of your deal even if you stand to lose money.

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