Can you sell your house if you have a HELOC?

A home equity line of credit (HELOC) is a popular way for homeowners to pay for big renovations or remodels. Or you may have used it to help consolidate some high-interest debt. Whatever the case, you're now thinking about selling your home, but you're not sure how the HELOC will impact the sale.

The good news is that yes, you can sell your house if you have a HELOC. The key requirement is that the HELOC must be paid off when the home is sold. In most cases, the balance is paid from the sale proceeds at closing. If the sale price doesn’t fully cover the HELOC, you may need to bring funds to closing.

People sell homes with HELOCs all the time, so don't worry. We'll go over how it works and what to consider before you sell a home that has a home equity line of credit.

Can you sell a house with a HELOC?

Yes, you can sell a house with a HELOC or home equity loan. It’s very common, and it could be relatively simple as long as your home sells for more than you owe on all your mortgages. If not, then you'll need to find a way to make up the difference.

The reason you need to pay off your HELOC before selling—or during closing—is because it’s a secured loan that uses your home as collateral. That means your HELOC lender has a lien on your home, and it must be cleared first before your home can be transferred to the buyers.

Let’s say you owe $50,000 on your HELOC, but you’d only get back $40,000 from selling your home after paying your primary mortgage balance and closing costs. In that case, you’d still owe $10,000 on your HELOC, and the home sale can’t proceed until you find a way to cover the shortfall. 

But let’s say you only owe $5,000 on the HELOC. In that case, you'd have more than enough to pay back your loans. The sale should go off without a hitch, and you’d still get $35,000 in cash from the sale of your home.

What happens to your HELOC when you sell your house?

In general, you can expect your closing agent to pay off any outstanding loans against your home using funds from your home sale. That includes your primary mortgage—and your HELOC, too. Here’s how it usually works:

1. Get documents: Ask your mortgage and HELOC lender for a loan payoff statement. Your closing agent will tell you any other documents they need, like your home’s title. 

2. Closing agent receives funds: After getting the funds from the buyer, the closing agent will pay any remaining closing costs and agent fees. 

3. Closing agent pays off your mortgage: Your primary mortgage is first in line to be paid if you sell your home. 

4. Closing agent pays off your HELOC: Second mortgages, like HELOCs, are next in line to be paid as long as there are enough proceeds left from the sale. 

5. You get remaining cash: Anything left over after paying off what you already owe is paid back to you, in cash. 

6. Lien is released: Once your lenders confirm that your accounts are paid off, they file paperwork with your local real estate office to remove any liens from your home. 

Do you have to pay off a HELOC before selling?

It’s not usually necessary to pay off a HELOC before you sell your home, since any remaining balance should be paid off during the closing process. You can if you like, though. 

That said, it’s a good idea to check with your HELOC lender beforehand. You should confirm how much you owe, as well as check if the lender has any prepayment penalties. Some lenders will charge you a fee if you pay off your loan before the end of the term.

As long as there are no prepayment fees, paying it off early might be worthwhile as long as your budget allows. The sooner you pay off your balance, the less you'll pay in interest fees. However, paying off the HELOC before you sell isn't typically required for the sale to go through.

What if your home sale doesn’t cover the HELOC balance?

If you owe a lot on your HELOC, or if you weren’t able to fetch as high of a sales price as you wanted, it’s possible that your home sale won’t fully cover your HELOC balance. And if your closing agent can’t pay off your HELOC from the sale proceeds, your HELOC lender won’t release the lien—and that can stall the closing process.

You may have a few options if your home sale won't cover your full HELOC balance, including:

• Use savings. If you have the money in savings to cover the shortfall, you could pay off the HELOC out of pocket.

• Get an unsecured loan. A small deficit might be covered with an unsecured loan like a personal loan. Keep an eye on interest rates, as they tend to be higher for unsecured loans than a secured loan like a HELOC.

• Negotiate a higher sale price. It's smart to crunch the numbers before you list your home so you know how much it needs to sell for to cover all of your debts. Remember to include closing costs and other fees in your calculations.

• Wait. Sometimes waiting is the best option. This could give you time to pay down your HELOC balance or to make improvements to your home to increase its sale price.

Can you transfer a HELOC to another home?

Unfortunately, no. You can't transfer a HELOC to another home. 

Each HELOC is tied to one specific home. The lender calculated the HELOC for that particular house, and placed a lien on it with the local authorities. Liens can’t be moved, so the HELOC itself can’t be transferred, either. It’s a key part of how HELOCs function.

The closest you could come to transferring a HELOC is to take out a new HELOC on another property and use the proceeds to pay off the existing HELOC. There are a few important things to consider with this plan:

• You need to own another property.

• That property needs to have enough equity to qualify for a HELOC.

• Your credit, income, and existing debt need to meet a lender's qualifications.

• The new HELOC will likely have closing costs and other fees.

• The new HELOC could have a higher interest rate than your existing loan.

It's also good to keep in mind that you're not getting rid of debt with this method, only moving it. You would still need to pay the new HELOC as agreed. And the new HELOC would need to be paid off if you sell the other property that secures it.