How It Works

Your mortgage is a lien on the property — it must be paid off before ownership can transfer to the buyer. In a cash sale, this happens automatically at closing:

1. The title company requests a payoff statement from your lender
2. At closing, the buyer's funds are used to pay off your mortgage balance in full
3. The title company distributes any remaining proceeds to you
4. The lien is released and ownership transfers to the buyer

You don't need to pay off your mortgage before selling — it's handled as part of the closing process.

What You'll Receive

Your net proceeds = Sale price − Mortgage payoff − Closing costs

For example: If you sell for $280,000, owe $180,000 on your mortgage, and have $5,000 in closing costs, you'd receive approximately $95,000 at closing.

What If You Owe More Than the Cash Offer?

If your mortgage balance exceeds the cash offer, you're in a situation called being "underwater" or having negative equity. Your options include:

• Pay the difference out of pocket — Bring cash to closing to cover the shortfall
• Short sale — Negotiate with your lender to accept less than the full payoff amount (requires lender approval and affects your credit)
• Loan modification or forbearance — Work with your lender to restructure the loan

Prepayment Penalties

Some mortgages include prepayment penalties for paying off the loan early. Check your loan documents or call your lender to find out if this applies to you. Prepayment penalties are less common on loans originated after 2014.