Selling a House If You Have HELOC: Info and Tips

Selling a house if you have HELOC

You’re ready to sell your house, but out of nowhere, you have HELOC. What’s that? Can you still sell?

This guide offers a straightforward overview of Home Equity Lines of Credit (HELOC) for homeowners planning to sell. We explain how HELOCs work, their approval process, and repayment terms. 

We’ll also highlight challenges and key points in selling a home with an active HELOC. Read the rest of our articles on the subject for more detailed information and tips.

HELOC: What Does It Mean

A HELOC, short for Home Equity Line of Credit, allows homeowners to borrow money using their home’s equity as collateral, typically at lower interest rates ranging between 2–4%. This financial tool is convenient for homeowners who require funds for various purposes, including home improvements, debt consolidation, or emergencies. 

Can You Sell A House If You Have A HELOC

Maybe you are thinking, “Is selling my house possible with an active Home Equity Line of Credit (HELOC)? Yes, but there are several key points and challenges to be aware of. When a house is sold with a Home Equity loan, the balance of the HELOC is typically repaid from the sale proceeds, along with any outstanding mortgage. 

This repayment can reduce the final amount the homeowner receives from the sale. One important factor to consider is the possibility of prepayment penalties associated with the HELOC, which are fees for paying off the loan earlier than planned. 

These penalties, if applicable, should be factored into the financial planning of the sale. When the sale proceeds are insufficient to cover the HELOC balance, homeowners have several options. 

They might delay the sale until their home equity increases, obtain a loan to cover the shortfall, sell personal assets, negotiate with the lender, or convert the HELOC to an unsecured line of credit. 

Each option has advantages and disadvantages and should be evaluated based on individual circumstances. The sale of a home to pay off a HELOC can also impact the homeowner’s credit score, as HELOCs are a form of revolving credit closely similar to credit cards. 

This impact results from changes in the debt-to-credit ratio and is an important factor to consider, especially for future financial planning. The decision to sell a house with a HELOC depends on the current real estate market and the value of your home. 

If the home’s current market value has decreased, the homeowner might owe more than they can recuperate from the sale. Conversely, if the value has increased significantly, the sale of your home might cover both the mortgage and the HELOC balance.

Given the complexities involved, homeowners should consult with real estate and financial professionals. For homeowners in Buffalo looking to sell their property with an active HELOC, services like those offered by Leave The Key Homebuyers can be a practical solution.

What Happens When You Sell Your Home With A HELOC

When selling your home with a HELOC, you must prepare for the process of settling the remaining balance from the sale proceeds. The mortgage lender typically plays a crucial role in managing the repayment of the HELOC loan, and the process involves several key steps and considerations:

Repayment of HELOC from Sale Proceeds

Repaying the HELOC balance is the primary action when selling a home with a HELOC. This repayment is typically done using the proceeds from the home sale. The process involves using the sale proceeds to pay off any outstanding mortgage, and then the remaining funds are directed toward settling the HELOC balance​​​​​​.

Potential for Outstanding Balances

If the sale proceeds are insufficient to cover the mortgage and the HELOC, the homeowner is responsible for paying the remaining HELOC balance. This situation can arise in cases where the home’s value has decreased or if the combined debt (mortgage plus HELOC) exceeds the sale price. Homeowners in this situation may need to use personal funds to cover the shortfall or explore other financial solutions​​​​​​.

Prepayment Penalties and Fees

Some HELOC agreements include prepayment penalties or early termination fees. These are additional charges that the homeowner might need to pay if the HELOC is settled before the end of its term. Homeowners must review their HELOC terms to understand the potential costs of selling their homes​​​​.

Impact on Credit Score 

The closure of a HELOC, a form of revolving credit, can affect the homeowner’s credit score. This is due to changes in the credit utilization ratio resulting from the repayment of the HELOC. Homeowners should consider the potential impact on their credit score when selling a home with a HELOC​​.

Home Equity Considerations

The equity in the home plays a crucial role in determining the funds available from the sale. The sale price minus any outstanding mortgage and HELOC balance gives the net proceeds. For example, if a home valued at $300,000 has a mortgage of $150,000 and a HELOC balance of $50,000, the equity available after sale would be $100,000, assuming the home sells at its market value​​.

Professional Consultation

Given the complexities of selling a home with a HELOC, homeowners must consult with real estate agents, financial advisors, or mortgage lenders. These professionals can provide essential guidance and help homeowners understand the best course of action given their specific circumstances and market conditions​​.

When selling a home with a HELOC, the primary focus is on repaying the HELOC using the sale proceeds. Besides the HELOC balance, homeowners must consider closing costs and additional expenses incurred during the property sale.

Homeowners must be mindful of potential shortfalls if the proceeds are insufficient, and understand any prepayment penalties. Being informed about things that may hurt your home’s appraisal is essential, as they can significantly impact the proceeds from your home sale.

Complications when selling with a HELOC

Complications When Selling With A HELOC

Selling a home with an active Home Equity Line of Credit (HELOC) presents unique challenges, particularly when the property’s market value does not sufficiently cover the combined debts of the mortgage and the HELOC. Understanding these complications is crucial for homeowners to make informed decisions.

Outstanding Balance vs. Sale Proceeds

One of the most significant complications arises when more than the proceeds from the home sale are needed to cover the outstanding balance of the HELOC. This scenario can occur due to market fluctuations or if the cumulative debt (mortgage plus HELOC) exceeds the property’s selling price. Homeowners may find themselves financially precarious, needing to cover the short sale out of pocket​​​​.

Depreciated Home Value

A decrease in the home’s market value since the HELOC was secured can lead to an underwater mortgage situation. Here, the homeowner owes more on their mortgage and HELOC than the home’s current worth. This complication makes the selling process more challenging and puts financial strain on the homeowner​​​​.

Prepayment Penalties And Fees

Some HELOC agreements include prepayment penalties or early termination fees. These additional charges can become a financial burden for homeowners who sell their property before the HELOC term ends, adding to the complexities of managing financial obligations during the sale​​.

Lien Holder’s Involvement

The HELOC lender’s involvement is critical in the sale process. Especially when the home’s value is lower relative to the mortgage loan balance, homeowners might need to negotiate with lenders to facilitate the sale. This situation often requires delicate handling to reach a viable solution​​.

Impact On Credit Score

Closing a HELOC impacts the homeowner’s credit score due to changes in the credit utilization ratio. This factor is particularly relevant for future financial planning, as it influences the ability to secure credit or personal loans​​.

Market Conditions

The state of the housing market significantly impacts the selling process. A stagnant or declining market can prolong the duration of finding a buyer, complicate the pricing strategy, and affect the sale’s overall feasibility​​.

Equity And Refinancing Challenges

Insufficient equity complicates covering the HELOC at sale. Moreover, homeowners with a HELOC might face difficulties refinancing their primary mortgage, as lenders often view such homes as higher risk​​.

Selling a home with an active HELOC requires careful consideration of these complexities. Homeowners should be well-informed about the potential challenges and may benefit from professional advice to manage these issues effectively.

Alternatively, homeowners might choose a cash-out refinance to clear their HELOC, converting home equity into a cash lump sum.

Should You Wait To Pay Off Your HELOC Before Selling

Understanding HELOCs is essential to personal finance, particularly for homeowners gearing up for a property sale. It provides greater flexibility for the homeowner. It allows for a clearer calculation of the amount of equity available from the sale and removes the need to coordinate different loan terms.

Refinancing the current mortgage, including the HELOC, might be necessary if the homeowner plans to use the sale proceeds to pay off the debt. However, waiting to pay off the HELOC could be a better option if the homeowner is in the midst of renovations or needs the funds for a down payment on a new property.

If the current mortgage rates are favorable and the monthly payments are manageable, using the sale proceeds as a lump sum to pay off the HELOC might not be necessary. 

Additionally, understanding the implications of taxes to sell your house is crucial for homeowners considering whether to pay off their HELOC before selling.


Selling a home with a HELOC requires careful planning and understanding of its financial implications. Homeowners should weigh the impacts on their finances, credit score, and home equity.

Leave the Key Homebuyers has you covered for an effective and beneficial sale. Whether you need information on your equity or mortgage or help selling a house, we’re here to help. We buy houses in Buffalo, and we buy houses in Albany, too. Contact us today and commit to a better future.

Can You Sell Your Home If You Have a HELOC? Tips and Info