What happens to a HELOC when you sell your house?

Selling your home is already overwhelming. Dealing with your home equity line of credit (HELOC) adds to the pile of to-dos. The good news? Handling this part of the process is easier than you think.

A HELOC lets you borrow against your home's value up to a limit. You can sell your home if you have a HELOC before buying another house, but you need to know how the payoff process works first.

Whether you're a first-time seller or not, the impact on your final proceeds depends on several factors, including your equity, outstanding balance, and associated fees or penalties. Here’s what you need to know.

What happens to a HELOC when you sell your house?

When you sell your house, you need to pay off your HELOC right away. Most HELOC contracts say the outstanding balance on your home equity line of credit becomes due immediately when you sell your home. 

At closing, your title company should pay off both your mortgage and HELOC. The closing agent uses the funds from your home sale to pay off these debts before giving you any remaining proceeds. Your lender then provides a payoff statement showing the exact amount you owe, including any interest up to the closing date.

Here's how selling a house with a HELOC works: 

— Pre-sale preparation: Contact your HELOC lender to request a payoff statement.

— During negotiations: Factor HELOC payoff into your minimum acceptable sale price.

— At closing: The title company uses sale proceeds to pay off all liens, including your HELOC.

— Post-closing: Any remaining funds are distributed to you as the seller.

This process is typically straightforward, but you need to notify your HELOC lender when you decide to sell to give them time to prepare the necessary paperwork and avoid closing delays. Some lenders require 10–15 business days' notice to prepare accurate payoff statements, so early communication is key.

One important note: Even if you're not using your HELOC, the credit line remains a lien against your property, meaning you must pay it off and close the line of credit as part of the sale process. This is the case regardless of whether you have an outstanding balance.

How a HELOC affects your home sale proceeds

Understanding how home equity works when selling a home is important for planning your sale. Two key factors play a role: the amount of equity you have and the TILA-RESPA Integrated Disclosure, or TRID.

The amount of equity you have

More equity gives you more flexibility when selling a house with a HELOC. Your equity is what your home is worth today minus what you still owe on it. If you have substantial equity, paying off your HELOC at closing shouldn't impact your ability to complete the sale.

Here's how different equity scenarios might play out:

Equity Level	Impact on Sale	Considerations
High equity (30%+)	Minimal impact	Plenty of room for HELOC payoff and closing costs
Moderate equity (10–30%)	Some impact	Need to calculate net proceeds carefully
Low equity (<10%)	Significant impact	May need to bring money to closing
Negative equity	Major complications	Short sale or cash required at closing

A large HELOC balance can reduce the cash you walk away with. In some cases, if your combined mortgage and HELOC balances exceed your home's sale price, you might face a short sale situation where you have to negotiate with lenders or bring money to closing.

Your TRID closing disclosure

TRID documents show exactly how much you need to pay off your HELOC and what you get from the sale. Your lender provides the TRID disclosure at least three business days before closing and breaks down all the costs for your sale.

Key items to verify on your TRID disclosure include:

— Outstanding principal balance on your HELOC

— Accrued interest through the closing date

— Any prepayment penalties or fees

— Daily interest rate (per diem) in case of closing delays

— Contact information for your HELOC servicer

Should you pay off your HELOC before selling?

Paying off your HELOC before selling your house could be beneficial, but it’s unrealistic in many cases. Here’s what to consider before paying off your HELOC early.

Benefits of paying off early

Paying off your HELOC before you sell your house has some perks:

— Simplified closing process: You have fewer liens to coordinate and pay off.

— Clearer financial picture: Know exactly how much you'll net from the sale.

— Negotiation flexibility: You have more room to accept lower offers if needed.

— Faster closing: There’s less paperwork to complete, and you can close quicker.

— Credit improvement: Less debt may help you qualify for your next home loan.

Benefits of keeping your HELOC until closing

Keeping your HELOC until closing has benefits, too. You maintain access to the credit line during the selling process, which can help cover moving expenses, temporary housing costs, or making final repairs to help your home sell faster. Plus, using your sale proceeds to pay off the HELOC means you don't need to come up with a large lump sum beforehand.

The main drawback is that you have less flexibility in your sale price negotiations. To avoid bringing money to the table, make sure your sale price covers your primary mortgage and HELOC balances, plus closing costs.

...in as little as 3 minutes – no credit impact

Additional considerations when selling a house with a HELOC

There are a few other factors to think about before selling your house with a HELOC.

Being underwater

Being underwater means you owe more than your home's worth. That means you need to bring cash to closing or work out a short sale with your lenders. If you’re in this situation, consider getting a professional appraisal or comparative market analysis to understand your equity.

Signs you might be underwater include:

— Recent market downturns in your area

— High loan-to-value ratios when you first purchased

— Significant HELOC borrowing against your equity

— Deferred maintenance that has reduced your home's value

Prepayment penalties and fees

Some HELOCs include prepayment penalties or early closure fees that can add to your closing costs. Review your HELOC agreement carefully to understand any fees for paying off the balance early. These fees are typically modest compared to your overall sale proceeds, but they do add up.

Common fees to watch for:

— Early termination fees: These might be $300–$500 if you close the line within the first few years.

— Prepayment penalties: Penalties may apply if you pay off the balance before a specific date.

— Administrative fees: You may experience small charges for processing the payoff and lien release.

— Attorney fees: Some lenders charge for legal document preparation.

With Better Mortgage, you don’t pay any HELOC repayment penalties or fees. Contact to find out more.

Overextension

If you've borrowed heavily against your home's equity, you might be in a tight spot when selling. Multiple liens against your property can complicate the closing process and reduce your negotiation flexibility. Consider working with a real estate professional with experience in complex financial situations to help manage the process.

Warning signs of overextension include:

— Combined mortgage and HELOC payments exceed 40% of your income

— You're only making minimum payments on your HELOC

— You've borrowed close to your credit limit

— You're using your HELOC to pay other debts or living expenses

Timing

Time your HELOC payoff with your closing date. You keep paying interest until you pay it off, so delays will cost you extra. Your lender typically provides a payoff statement that stays valid for 10–30 days.

To avoid timing issues:

Request your payoff statement early in the process

— Understand your lender's requirements for payoff coordination

— Build buffer time into your closing schedule

— Have a backup plan if closing gets delayed

— Communicate with your title company and HELOC servicer

Market conditions and pricing strategy

Your local market affects how easy it is to sell. You can price high enough in hot markets to cover your debts and attract buyers. But in a buyer's market, you have to be more strategic about pricing, and you might have to pay off your HELOC beforehand.

Consider these market factors:

— Average days on market in your area

— Competition from other listings

— Buyer financing availability

— Seasonal trends that might affect timing

— Local economic conditions

Use Better’s HELOC when selling your home

Selling your home with a HELOC is possible, though it requires careful planning and coordination. The main thing you need to know is that your HELOC balance will be paid off at closing using your sale proceeds, which reduces the amount of cash you receive from the sale.

Better offers a flexible second-lien HELOC that won't interfere with your current mortgage terms, and you can pay it off when your home sells. With Better's interest-only payment options, you can manage your monthly costs while preparing to sell. When your current home sells, you can pay off the HELOC and primary mortgage with no prepayment penalties or fees, making the transition to your next home smoother and more affordable. 

...in as little as 3 minutes – no credit impact