What is a home equity loan?
A home equity loan or HELOC (home equity line of credit) lets you use your house as collateral to secure funds. You may have borrowed against your home equity for a one-time lump sum of money (a home equity loan) or for a revolving line of credit that works much like a credit card (a HELOC). Either way, home equity loans create a lien against your house just like your primary mortgage.
What is a lien?
A lien is a legal claim against an asset that’s used as collateral to support a debt. When that lien takes the form of a home equity loan, the lender can force you to sell your house if you don’t repay your debt or make your payments on time.
Your loan must also be repaid in full when you sell your home voluntarily.
But since a lien is typically paid out of the proceeds when an asset is sold, so long as your home is worth more than the amount you owe on it, you shouldn’t have any trouble repaying your home equity loan when you sell your house.
What to expect when selling a house with a home equity loan in place
If you have a home equity loan and decide to sell your house, you’ll use the money you get from the buyer to pay off both your primary mortgage (if you have one) and any remaining principal on your home equity loan.
Here’s how that usually works.
1. You’ll choose an experienced realtor.
Your realtor will recommend a selling price based on the fair market value of similar homes in your area. Once you’ve signed a listing agreement, they’ll begin finding potential buyers and advising you on which offers are likely to provide the best financial outcome.
2. You’ll review all offers carefully.
It’s important to review the expected cash proceeds from every offer thoroughly—especially since the sale of your house is likely to trigger additional costs like: