Can You Sell a House With a HELOC?

Reviewed by: Brandon Brown

Selling a home can be complicated, and having a Home Equity Line of Credit (HELOC) adds another layer to the process. If you’ve used a HELOC for home improvements, debt consolidation, or other expenses, you may be wondering—can you still sell your house with an active HELOC? The good news is you can sell a home with a HELOC, but you’ll need to pay off the balance when the sale closes. A HELOC is a second mortgage, meaning it’s tied to your home’s equity and must be settled before ownership transfers to a buyer. This means understanding your financial obligations, potential fees, and how much money you’ll walk away with after selling. Let’s break down how selling a home with a HELOC works and how to make the process easier.

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a loan that allows homeowners to borrow against their home’s equity. Unlike a traditional home equity loan, which provides a lump sum, a HELOC works like a credit card, allowing homeowners to borrow as needed. To be eligible for a Home Equity Line of Credit (HELOC) with U.S. Bank, applicants must have a minimum FICO credit score of 660. The bank also evaluates factors such as:

equity available in the property
applicant’s credit history
debt-to-income ratio
income stability.

Since a HELOC is secured by your home, it means your house acts as collateral for the loan. If you sell the house, the HELOC must be paid off in full before you can transfer ownership to the buyer. The lender holds a lien on your home, and that lien has to be cleared at closing to complete the sale.

Why Homeowners Consider Using a HELOC

Many homeowners take out a HELOC loan for various reasons, including home improvements, paying off debt, covering emergency expenses, or even as a financial backup. However, when it comes time to sell the property, having an active HELOC requires extra planning.

Importance of Understanding the Implications

Since a HELOC is secured by your home, selling with an active balance means ensuring the loan is fully paid before transferring ownership. Understanding your HELOC lender’s terms, including potential prepayment penalties, can help you avoid surprises during the closing process.

When Is a HELOC a Problem for Selling?

A HELOC can complicate the selling process if:

The HELOC balance is high, reducing the money a seller receives after the sale.
The home value drops, leaving homeowners with less equity to pay off both their mortgage and HELOC.
The lender requires additional fees for early payoff or closing the HELOC account.

What Happens to a HELOC When You Sell?

HELOC Must Be Paid Off at Closing

When you sell your house, any outstanding HELOC balance is automatically deducted from your sale proceeds before you receive any profits. This means your lender will get paid first, along with your primary mortgage, before you take home any funds from the sale.

Potential Challenges

Selling a home with a HELOC isn’t always straightforward. If your home value has increased, you may have enough equity to cover the HELOC loan balance comfortably. However, if your real estate market value is low or has dropped, you could end up owing more than your home is worth. In this case, you might have to pay the shortfall out of pocket to complete the home selling process.

Lender Payoff Process

Before selling, you’ll need to:

Request a HELOC payoff statement from your lender to determine how much you owe.
Stop withdrawing funds from the HELOC to prevent your balance from increasing.
Close the HELOC account after repayment to avoid future financial obligations.

What If You Don’t Have An Outstanding HELOC loan?

If you don’t have an outstanding HELOC loan (meaning you haven’t borrowed any money from the line of credit), you can still sell your home without needing to pay anything toward the HELOC balance. However, you may need to close the HELOC account before the sale is finalized. So, if you haven’t borrowed from the HELOC or already closed it, your sale proceeds won’t be affected—you just need to confirm with your lender that the account is fully closed before listing your home. But remember, even if you’re selling a home without an outstanding HELOC balance, providing clear seller disclosures is also important here, as it reassures buyers and prevents unexpected delays at closing. And for homeowners facing both a HELOC balance and foundation issues, they may struggle to find traditional buyers willing to take on the risks.

Can You Transfer a HELOC to a New Property?

Some homeowners wonder if they can transfer their HELOC to a new property instead of paying it off. Most lenders do not allow this because a HELOC is tied to a specific home as collateral. If you want to use a HELOC on a new home, you’ll need to:

Pay off the existing HELOC first.
Apply for a new HELOC based on the new property’s equity and market value.

Meanwhile, some sellers with a HELOC choose to sell directly to a home-buying company, like FlipSplit, to avoid the additional costs that come with high realtor fees.

How HELOC Can Impact You Financially

Impact on Sale Proceeds

Your home sale proceeds will first go toward repaying your mortgage, followed by the HELOC balance. If you have substantial home equity, you may still walk away with profits. However, if your loan balances exceed your home value, you could be left owing money after the sale.

Expected Costs During the Sale

In addition to repaying your HELOC, you’ll also need to budget for other closing costs, including real estate agent commissions, title fees, and escrow fees. Understanding these financial responsibilities ahead of time can prevent last-minute surprises.

Addressing Outstanding Debt

If you owe more on your mortgage and HELOC than your home’s sale price, you may need to consider alternative solutions, such as a short sale, negotiating with your lender, or working with a cash buyer like FlipSplit.

The Importance of Good Credit Scores

Selling a home with a HELOC and ensuring timely loan repayment can impact your credit score. If you fail to pay HELOC balances in full, your credit could take a hit, making it harder to qualify for future loans.

Tax Implications of Selling with a HELOC

Depending on how you use your HELOC funds, there may be tax implications when selling your home. For example:

If the HELOC was used for home improvements, interest may be deductible.
If the HELOC was used for personal expenses, no deduction may be available. Consulting a tax professional can help clarify your tax obligations.

Key Considerations When Selling a Home With a HELOC

Home Equity Matters

The more home equity you have, the easier it is to sell your house with a HELOC. If your home is worth more than what you owe on both your mortgage and HELOC, you can pay off both loans at closing without stress. However, if your equity is low, you might need to explore alternatives to avoid financial loss.

Timing the Sale

Some HELOCs come with prepayment penalties or early closure fees if you pay them off too soon. Check your loan terms to understand if there are any additional costs for selling before a certain period.

Managing Escrow Accounts

When selling a home with a HELOC, funds will pass through an escrow account to ensure that all debts, including your HELOC balance, are paid before the seller receives any remaining proceeds.

What Happens If You Can’t Pay Off the HELOC?

If you don’t have enough sale proceeds to cover the HELOC balance, consider these options:

Negotiate with Your Lender – Your HELOC lender will require a payoff request before closing. It’s important to work closely with your mortgage lender, HELOC provider, and escrow officer to ensure all loans are properly settled.
Cover the Shortfall – If possible, pay the remaining balance out of pocket.
Work with a Cash Buyer – Companies like FlipSplit buy homes as-is, even if there’s a HELOC attached, making it easier to sell without financial complications.

How FlipSplit Makes Selling With a HELOC Easier

Selling a home with a HELOC can feel overwhelming, but FlipSplit makes the process simple and stress-free. Here’s how:

No Need for Repairs or Listing – FlipSplit buys homes as-is, so you don’t have to worry about fixing anything before selling.
Fast, Cash-Based Sales – Avoid the uncertainty of waiting for a buyer’s financing to go through.
No Unexpected Shortfalls – Our process ensures a smooth closing, so you don’t have to worry about last-minute financial surprises.

Sell Your Home Hassle-Free With FlipSplit

Selling a home with a HELOC requires careful planning, but with the right approach, it doesn’t have to be stressful. Whether you need to pay off your loan, avoid prepayment penalties, or handle a negative equity situation, FlipSplit is here to help. Don’t let a HELOC complicate your home selling journey. FlipSplit makes the process smooth, simple, and stress-free. If you’re ready to move forward with a fast and fair cash offer, get in touch with FlipSplit today and take the next step toward a hassle-free home sale!

Reviewed by: Brandon Brown

As a long-time Asset Manager, Investor, Real Estate Agent, and Broker/Owner of BayBrook Realty in Orange County, Brandon Brown is one of FlipSplit’s lead Real Estate experts. Having worked on over 2,000+ real estate transactions, Brandon brings a depth of knowledge that ensures clients are appropriately treated with honesty and integrity. His insights and advice have been published in numerous blogs beyond FlipSplit, and he keeps a close eye on market trends and statistics, which are updated weekly on his social media pages. Outside work, you can find him participating and serving at church, cycling, mountain biking, surfing around Orange County and beyond, and enjoying time with his wife and two daughters.

Sources:

Bank of America. (n.d.). What is a home equity line of credit (HELOC)? https://www.bankofamerica.com/mortgage/learn/what-is-a-home-equity-line-of-credit/
Bankrate. (2024). What happens to your HELOC when you sell your home? https://www.bankrate.com/home-equity/what-happens-to-heloc-when-i-sell-my-home/
Consumer Financial Protection Bureau. (n.d.). What you should know about home equity lines of credit. https://files.consumerfinance.gov/f/documents/cfpb_heloc-brochure_print.pdf
Investopedia. (2024). Can you sell a house with a home equity loan? https://www.investopedia.com/selling-house-home-equity-loan-5323126
U.S. Bank. (n.d.). Home equity line of credit (HELOC). https://www.usbank.com/home-loans/home-equity/home-equity-line-of-credit.html