If you still have a mortgage on your Memphis home, you might wonder whether you can sell before it’s paid off. The short answer is yes — most homeowners do.
In fact, over 60% of Memphis home sales in the past two years involved properties that still had active mortgages.
The key is understanding how your loan payoff, home equity, and closing process work — especially if you’re considering a cash buyer offer for speed and convenience.
Selling With a Mortgage: How It Works
When you sell a home with a mortgage, your loan balance doesn’t vanish. Instead, it’s paid off at closing from your sale proceeds.
Here’s the simple sequence:
- The buyer pays the agreed sale price.
- The title company uses those funds to pay off your lender.
- Any remaining money (your equity) goes to you.
This ensures your lender releases the lien so the buyer receives a clear title.
Step 1: Understanding Your Payoff Statement
A mortgage payoff statement shows exactly how much you owe as of a specific date, including interest up to that day. You can request it from your lender, and it usually includes:
| Section | Example |
|---|---|
| Principal Balance | $142,300 |
| Accrued Interest | $345 |
| Recording/Release Fees | $85 |
| Total Payoff | $142,730 |
If your closing is delayed by a few days, expect minor adjustments for daily interest (typically $15–$25 per day).
Step 2: Calculating Your Home Equity
Your home equity is the difference between your home’s value and what you owe on the mortgage.
Formula:
Home Value – Loan Payoff = Equity
Example:
If your Memphis home sells for $250,000 and you owe $142,730, your equity is:
$250,000 – $142,730 = $107,270
From that amount, you’ll still pay typical seller costs such as title fees or commissions (unless you sell directly to a cash buyer).
Step 3: How Lenders Handle the Payoff
At closing, the title company or attorney sends the payoff directly to your mortgage lender via wire transfer or certified check. The lender then records a release of lien, officially clearing your property title.
This process ensures there’s no overlap between ownership and debt — even if your payment is due the same week.
If your loan includes prepayment penalties, those will appear on the payoff statement as well. Most modern Tennessee loans don’t include them, but it’s wise to check.
Real Memphis Example
A seller in Bartlett had a home worth $280,000 with a $190,000 remaining mortgage. After receiving a cash offer for $270,000, they paid off their loan, covered about $3,000 in closing costs, and still walked away with roughly $77,000 in net equity.
Because cash buyers skip lender delays, the seller closed in nine days, instead of the typical 45-day financed closing timeline.
Selling to a Cash Buyer When You Have a Mortgage
You don’t need to pay off your loan before accepting a cash offer. In fact, it’s one of the most common Memphis home sale situations.
Cash buyers often work directly with the title company to ensure your lender receives full payment at closing. Since there’s no waiting on appraisals or loan approvals, you get your equity quickly.
That’s why many homeowners who want a quick, guaranteed close work with cash home buyers in Memphis, especially when they need to sell before relocating or upgrading.
How Equity Works in Different Scenarios
Let’s look at three Memphis homeowner examples:
| Scenario | Home Value | Loan Payoff | Equity | Sale Type | Timeline |
|---|---|---|---|---|---|
| Owner 1 | $200,000 | $140,000 | $60,000 | Traditional | 45–60 days |
| Owner 2 | $250,000 | $180,000 | $70,000 | Cash Buyer | 10 days |
| Owner 3 | $180,000 | $175,000 | $5,000 | Distressed Sale | 7–14 days |
Even if you have limited equity, a cash sale can prevent foreclosure or help you close without additional costs.
Many Memphis cash buyers can even help coordinate with your lender if you’re behind on payments, buying you time and avoiding credit damage.
Advantages of Cash Buyer Sales When You Still Have a Mortgage
✅ Faster Closing
Cash buyers close in days instead of weeks, which means your interest costs stop accumulating faster.
✅ No Appraisal Delays
Lenders require appraisals, but cash buyers don’t. You skip weeks of waiting and uncertainty.
✅ Simplified Paperwork
With no financing contingencies, your lender just provides a payoff, and you walk away with your net equity.
✅ Avoiding Repairs
Cash buyers purchase “as-is,” saving you from spending more before closing.
Potential Drawbacks to Consider
- Lower Sale Price: Cash offers may be below full retail value because buyers assume repair and resale risks.
- Limited Negotiation Room: Cash buyers value speed and certainty more than price flexibility.
- Equity Expectations: If your loan balance is high, make sure your sale price covers your payoff to avoid bringing cash to closing.
What If You Owe More Than the House Is Worth?
If your payoff exceeds your sale price, you’re in what’s called an underwater mortgage.
Options include:
- Negotiating a short sale: Your lender may approve a discounted payoff.
- Loan modification: Adjusting your loan terms to stay in the home.
- Cash buyer partnerships: Some buyers work with lenders to close even in underwater situations.
Always discuss these scenarios with your lender before committing to a sale.
Tax Considerations When Selling With a Mortgage
If you’ve owned and lived in the home for at least two of the last five years, the IRS allows you to exclude up to $250,000 ($500,000 for couples) of capital gains from taxes.
Your mortgage amount doesn’t change this — taxes apply only to profit, not total proceeds.
For example, if your home sells for $250,000, your payoff is $150,000, and you originally bought for $180,000, your taxable gain is just $70,000 (and likely excluded under federal rules).
Common Lender Questions (FAQs)
Q1: Do I have to tell my lender I’m selling?
No advance notice is required. Your title company will contact them when requesting your payoff.
Q2: Can I stop making mortgage payments once I get an offer?
No. Continue payments until your loan is officially paid at closing to avoid late fees or credit issues.
Q3: What if my payoff is higher than my sale proceeds?
You’ll need to bring the difference to closing or work with your lender on a short sale.
Q4: Does selling affect my credit?
No, as long as your mortgage is paid off in full and reported as “closed—paid as agreed.”
Q5: What happens to escrow funds for taxes and insurance?
Your lender refunds any unused escrow balance about 2–4 weeks after payoff.
Final Thoughts
Selling a Memphis home with a mortgage isn’t complicated once you understand the process.
The key steps — requesting a payoff, calculating equity, and working with a title company — are routine parts of most Tennessee home closings.
If you’re looking for a fast, hassle-free sale, consider cash buyer options. They simplify the process, eliminate appraisal and repair delays, and help you unlock your equity in days instead of months.
Author Bio
Written by Sarah Thompson, Lead Acquisition Specialist at Your Neighborhood Home Buyers. With 15+ years of experience helping Memphis homeowners sell properties with active mortgages, Sarah specializes in smooth, fast closings and equity-based solutions. Learn more about our team.