Settling Your Mortgage Balance When You Sell Your Home

Answer

Selling a property with an existing mortgage means you’ll use part of your sale proceeds to pay off the remaining loan. Mortgage payoff happens at closing, ensuring the lender’s lien is released before the new owner takes title.

Here’s what to expect:

• Request a payoff statement: Contact your lender 10–30 days before closing to obtain an exact payoff amount, including interest through your closing date and any prepayment fees. These statements often expire after 10–30 days, so timing matters.
• Calculate your net proceeds: Subtract the mortgage balance, closing costs and real estate commissions from your agreed sale price. The remainder represents your equity—or the cash you’ll receive at closing.
• Include payoff in closing disclosure: Your title or escrow company will prepare a Closing Disclosure (per CFPB rules) showing the lender as a payee. Funds flow directly from the buyer’s escrow deposit to your lender, then any surplus is disbursed to you.
• Handle short sales or shortages: If the sale price falls short of the mortgage balance, you’ll need lender approval for a short sale. Without approval, you must cover the difference at closing or risk a failed transaction.
• Watch for lien release: After you pay off the loan, the lender records a lien release or satisfaction of mortgage. Verify recording with your title company to ensure the new owner receives clear title.

Additional considerations include checking for any prepayment penalties in your loan documents and confirming payoff fees with your lender or servicer. You may also link your agent to a sample payoff request form or visit the Consumer Financial Protection Bureau for more on closing disclosures.

Every lender and locality can have unique requirements, so buyers are recommended to verify the exact steps with their real estate agent or closing officer. It’s advisable to consult a licensed attorney or title professional to ensure a smooth payoff and clear title transfer.