How to Sell Your Home with a Home Equity Loan: Key Tips and What to Expect

Yes, you can sell your home even if it has an outstanding home equity loan or line of credit. When you decide to sell, the proceeds from the sale are typically used to pay off the remaining balance of your loan.

Home equity loans, often called second mortgages, allow you to borrow against the value of your home with generally lower interest rates and longer repayment terms. However, since these loans are secured by your property, selling the home triggers the need to repay the loan in full.

During the closing process, an escrow agent will provide a Truth in Lending Real Estate Integrated Disclosure (TRID) form outlining how the sale proceeds will be allocated—covering your primary mortgage, home equity loan, and any other liens. Once these debts are settled, your home equity loan is officially closed, and you won’t owe any further payments.

Benefits and Challenges of Selling with a Home Equity Loan

Most home sales with an attached home equity loan proceed smoothly, using sale funds to clear your debts and potentially improving your credit score by eliminating outstanding balances early.

However, challenges can arise if your home’s market value has dropped since taking out the loan. In such cases, the sale proceeds may not cover the full loan amount. Some lenders may agree to a short sale, forgiving the remaining balance, but others might require you to pay the difference out of pocket.

Additionally, some home equity loans include early repayment penalties. These fees can apply if you pay off your loan before the term ends, which often happens when selling your home. It’s crucial to consult your lender beforehand to understand any potential costs.

Frequently Asked Questions

Can I sell my house if I have a home equity loan?

Absolutely. Selling your home is possible, and the sale proceeds are usually used to pay off the home equity loan, freeing you from further payments.

What if my home’s value has decreased?

If your home’s sale price is less than what you owe on the loan, some lenders may agree to a short sale, forgiving the difference. Otherwise, you may need to cover the remaining balance yourself. Always verify this with your lender before selling.

Are there fees involved when selling a home with a home equity loan?

Some loans carry early repayment penalties. Check with your lender to find out if your loan has any fees that apply upon selling.

Final Thoughts

Selling a home with a home equity loan is entirely feasible and commonly done. By understanding the repayment process, potential challenges like decreased home value or penalties, and communicating with your lender early, you can ensure a smooth transaction and avoid surprises.

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