Can You Sell Your House If You Have A HELOC?

Your Guide to Selling a House if You Have a HELOC

Can You Sell Your House If You Have A HELOC?

A Home Equity Line of Credit (HELOC) is comparable to a Swiss Army knife of economics for homeowners. It’s a common practice to borrow money against your house’s value for various purposes, including debt consolidation and home renovations. 

But when it’s time to sell, a HELOC can complicate things. The balance gets paid off from the sale proceeds, which might mean less money in your pocket. According to the latest data, homeowners have an average HELOC balance of $25,974, totaling $340 billion in HELOC debt across the nation. 

Can you sell your home if you have a HELOC? Well, it’s familiar but a bit tricky for homeowners. This blog will walk you through the essentials of selling your house with a HELOC, ensuring you’re prepared for every step.

If you are facing financial downturns and contemplating whether to rent or sell your house, we specialize in providing insights into the latest trends in the real estate market.

HELOC: What Does It Mean?

A versatile financial instrument that enables homeowners to borrow against the equity of their properties is a Home Equity Line of Credit (HELOC). Consider it a credit line that you can utilize for a variety of purposes, such as debt consolidation, house restorations, and enhancements. 

Whereas a conventional home equity loan provides a single sum, a home equity line of credit (HELOC) allows you to borrow money as needed, frequently at a reduced interest rate. Because of its adaptability, it’s a well-liked option for homeowners wishing to update or improve their financial management. 

However, it’s essential to understand how a HELOC affects sale proceeds and mortgage payments if you decide on your house. With a HELOC, you’re using your home as collateral, so it’s crucial to plan to pay off the HELOC at closing to ensure a smooth home sale. Coordinating with your lender is key in ensuring all financial obligations are met for a successful transaction.

HELOC: Do’s and Don’ts

So, can you sell your home if you have a HELOC? Absolutely, but it’s crucial to weigh this financial tool’s benefits and potential drawbacks carefully. Here’s a closer look:

Key Benefits of HELOC

  • Flexibility in Use: A HELOC provides a credit line for various needs, from home improvements to debt consolidation, offering unparalleled financial flexibility. This means you can invest in your home’s value or manage unexpected expenses efficiently.
  • Lower Interest Rates: Compared to credit cards and personal loans, a HELOC offers significantly lower interest rates, making it a more economical choice for borrowing. This advantage enables homeowners to undertake larger projects or consolidate debt without the burden of high-interest costs.
  • Tax Deductions: Using a HELOC for home buying or renovations can lead to potential tax deductions on the interest paid, offering financial relief during tax season. This benefit underscores the HELOC’s value in strategic financial planning and savings.
  • Revolving Credit: A HELOC’s draw period provides ongoing access to funds, allowing you to borrow, repay, and borrow again. This revolving credit feature supports continuous financial needs, making it ideal for long-term projects or emergency funds.
  • Access to High Credit Limits: HELOCs often offer higher credit limits than other forms of credit, enabling homeowners to access substantial funds based on their home’s equity. This advantage is crucial for financing major home improvements or addressing significant expenses.
  • Payment Flexibility During Draw Period: During the draw period, borrowers are usually required to make interest-only payments on the amount drawn from their HELOC, not the full loan amount. This payment flexibility aids in managing cash flow, especially during financially tighter periods.

Potential Drawbacks of HELOC

  • Risk of Foreclosure: With your home as collateral, a HELOC poses a risk of foreclosure if monthly payments falter. This severe consequence highlights the importance of careful financial management when leveraging home equity.
  • Fluctuating Payments: The variable interest rates associated with a HELOC mean that monthly payments can vary, potentially complicating budgeting and financial planning. Homeowners must stay vigilant about rate changes to manage their finances effectively.
  • Impact on Credit Score: A HELOC can affect your credit score in various ways. High utilization rates or missed payments can negatively impact your score, emphasizing the need for disciplined credit management.
  • Complexity in Selling Your Home: The requirement to pay off a HELOC at closing adds complexity to the home-selling process, potentially reducing sale proceeds. This situation necessitates careful planning and coordination with lenders and real estate agents to ensure a smooth transaction.

What Happens When You Sell Your Home With a HELOC

When you decide to sell your home with a Home Equity Line of Credit, the process involves a few extra steps compared to a standard home sale. First, the sale proceeds from your home are used to pay off any outstanding balance on the HELOC, along with your first mortgage and any other liens. 

This is typically managed through an escrow account, ensuring all parties receive their due payments before the sale closes. In the real estate market, selling a home with a HELOC can sometimes complicate matters, significantly if the market value of your home has changed since you took out the HELOC. 

If your home’s sale price doesn’t cover the loan amount plus the mortgage balance, you might find yourself in a short-sale situation, requiring lender approval. However, you can navigate these waters smoothly with careful planning and refinancing to a more favorable interest rate or terms. 

Paying off the HELOC at closing is a common practice. This ensures that all debt associated with the property is settled, allowing you to move on to your new home without lingering financial obligations. Engaging a knowledgeable real estate agent can also provide valuable guidance through this process, ensuring a successful home sale.

If you are willing to sell your house in Minneapolis, we can assist you in moving forward with the process efficiently, as our team offers expert guidance and support.

Can You Sell Your Home If You Have a HELOC?

Hurdles to Overcome When Selling With a HELOC

Selling a home with a HELOC can feel like navigating a maze. Each turn presents its hurdles, but you can find your way out with the proper knowledge. 

Here are the main obstacles and how to tackle them:

  • Covering the Loan Amount: If the sale price of your home doesn’t cover the HELOC balance plus your first mortgage, you’ll need to find additional funds to close the sale. This might involve dipping into savings or negotiating with the lender.
  • Market Value Fluctuations: The real estate market can be unpredictable. If your home’s market value has decreased, you might need more from the sale proceeds to cover all debts, leading to a potential short sale situation.
  • Lender Approval for Sale: When selling a home with a HELOC, getting lender approval is crucial, particularly with a second mortgage. This step can lengthen and complicate the sale process, requiring additional coordination and paperwork.
  • Refinancing Challenges: If you refinance your HELOC or first mortgage before selling, you can offer more favorable terms, but it might be difficult if your credit score has changed or if market conditions have shifted. 
  • Closing Costs and Fees: Closing costs can eat into your sale proceeds, and if you have a prepayment penalty on your HELOC, you’ll face additional expenses. Planning for these costs is crucial to avoid surprises.
  • Navigating Escrow: The escrow process involves coordinating with multiple parties, including lien holders and real estate agents, to ensure all debts are paid before the sale closes. Missteps here can delay or derail the sale.

Should You Wait to Pay Off Your HELOC Before Selling?

Deciding whether to pay off your HELOC before selling your home is a nuanced choice, deeply intertwined with your personal finance goals and the real estate market conditions. If the market value of your home has soared, selling without clearing the HELOC might still net you a significant profit, allowing sale proceeds to cover the loan amount and potentially debt consolidation. 

However, consulting with mortgage lenders or a financial advisor is wise. They can offer insights into whether using sale proceeds to pay off the HELOC at closing aligns with your financial strategy, especially considering mortgage loan rates and terms. Ultimately, the decision hinges on balancing the benefits of home improvements or renovations financed by the HELOC against the financial implications of your home loan and current mortgage situation. 

Consulting with financial advisors and mortgage lenders can provide clarity, helping you make an informed choice about your home loan and the timing of your sale.  For homeowners who are thinking about selling their house, we can provide you with the best advice if you need to prepare your house for sale.


Selling your home with a HELOC might sound complex, but with the right support, it’s entirely manageable. Mill City Home Buyers is here to guide you through every step, offering solutions for those tough spots, whether dealing with repairs, facing foreclosure, or juggling bills. 

Our expertise in the real estate market and understanding of home equity loans means we’re well-equipped to help you navigate these challenges. Why wait to tackle property problems? If you want to sell your house in St Paul, we can assist and buy.

Look into our blogs for valuable tips on renting vs selling your property and reach out to learn how we can assist you in moving toward a brighter future. With Mill City Home Buyers by your side, saying goodbye to property woes and welcoming new beginnings is easier than you think.


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