Selling with a mortgage is normal
Most Ohio homeowners who sell still owe on their mortgage. The mortgage is a lien recorded against the house, and the buyer’s title company won’t close until it is paid off and released. So paying it off is built into every closing: the money comes out of the buyer’s purchase price before you see any of it.
You don’t need to save up to clear the loan first, and you don’t need the lender to approve a sale that pays it in full. You do need to know your payoff figure, because it decides how much you’ll walk away with.
How the payoff works at closing
- The title company requests your payoff. It sends your lender a written request with your authorization. Under Regulation Z, the servicer must send an accurate payoff statement “within a reasonable time, but in no case more than seven business days” after a written request.
- The payoff is good through a date. The statement shows principal, interest to a given date, any fees, and a daily interest amount for each extra day.
- The settlement statement lists it. The payoff appears as a debit on your side, along with commission, the conveyance fee and other costs.
- The title company wires it. At closing, the payoff goes to the lender from the buyer’s funds.
- The lender records a release. The lien comes off the county record.
If you have a second mortgage or a home equity line, the same steps happen for each loan, in order of priority. See selling a house with a HELOC for the extra steps on a line of credit.
Figure out what you’ll net
Your proceeds are the sale price minus everything that comes off the top. The rough formula:
Sale price, minus mortgage payoff, minus selling costs, minus prorated taxes and other liens, equals your proceeds.
Example for a house in Cuyahoga Falls:
| Line | Amount |
|---|---|
| Sale price | $210,000 |
| First mortgage payoff, interest to closing | minus $128,400 |
| Commission at the 5.65% Ohio average, if listed | minus $11,865 |
| Conveyance fee at $4 per $1,000 | minus $840 |
| Title and settlement charges, prorated taxes (example) | minus $3,500 |
| Estimated proceeds | about $65,400 |
Our home equity guide walks through each number in more detail.
When you owe more than the house will sell for
If the payoff plus selling costs is more than the price, you are “underwater.” The sale can’t close unless the gap is covered. Your options:
- Bring cash to closing to cover the shortfall.
- Ask for a short sale, where the lender agrees to accept less than the full payoff. The lender must approve the price and the costs, and the process takes longer. See short sales in Ohio.
- Wait and pay down the loan, if time is on your side.
- Reduce selling costs, for example by selling without paying a full commission.
Our page on how to sell a house worth less than you owe compares these paths.
Prepayment penalties, escrow and other loan details
Check three things in your loan documents before you list:
- Prepayment penalty. Some loans carry a charge for paying off early. Read your note, and the payoff statement will show it if yours does.
- Escrow account. If your lender collects taxes and insurance, the escrow balance is refunded after the loan is paid off. It doesn’t reduce your payoff, and it is separate from the tax credit you give the buyer at closing.
- Interest timing. Mortgage interest is paid in arrears, so your payoff includes interest from your last payment to the closing date. Closing a few days later adds a few days of interest.
Keep making regular payments until closing. A missed payment raises the payoff and can add late fees.
Timeline: when to request the payoff
Ask the title company to request your payoff as soon as you have a signed purchase agreement. The servicer has up to seven business days to respond, and you want the figure in hand in time to check it against the draft settlement statement. If closing moves, the title company updates the payoff using the per-diem interest figure or requests a new statement.
After closing: getting the release recorded
The lender’s job isn’t done when it receives the payoff. R.C. 5301.36 requires the mortgagee to “record a release of the mortgage evidencing the fact of its satisfaction” in the county recorder’s office within 90 days of payoff.
If it doesn’t, the current owner and the former borrower can recover $250 in a civil action. The current owner can also send a written notice in a form set out in the statute, and if the release still isn’t recorded within 15 days, recover attorney fees plus $100 a day, up to $5,000.
Title companies usually track releases for their closings. Keep your payoff letter and the final statement in case an old mortgage ever shows up on a title search.
Selling with a mortgage when you’re behind
You can sell even if you’ve missed payments or the lender has started foreclosure. The payoff will include past-due amounts, late charges and legal fees, and Regulation Z gives a servicer “a reasonable time” rather than seven business days for a payoff on a loan in foreclosure or bankruptcy. Ask for the payoff early. Our guide on how to sell a house behind on mortgage payments covers the timing in more detail.
