The main ways to get out of a mortgage are selling the property, refinancing, having someone assume the loan or negotiating with your lender for hardship relief. Selling is the cleanest exit if you have equity. If you’re underwater or facing financial hardship, options include short sale, deed in lieu of foreclosure, loan modification or bankruptcy. Each option has different credit impacts and financial consequences.
Option 1: Sell the Property
The simplest way to exit a mortgage is selling the home and paying off the loan.
When Selling Works
You have equity: Sale proceeds exceed what you owe plus selling costs.
Example:
- Home value: $400,000
- Mortgage balance: $320,000
- Selling costs (8%): $32,000
- Net after sale: $48,000 profit
The Process
- List the property with an agent or FSBO
- Accept an offer
- Close the sale
- Title company pays off mortgage from proceeds
- You receive remaining funds
Selling Costs to Plan For
| Cost | Typical Amount |
|---|---|
| Real estate commission | 5-6% |
| Closing costs | 1-2% |
| Repairs/prep | Varies |
| Moving expenses | $2,000-$10,000 |
Timeline
- Listing to sale: 30-90 days (market dependent)
- Closing: 30-45 days after contract
Credit Impact
None—paying off a mortgage through sale is positive for credit.
Option 2: Refinance
Refinancing replaces your current mortgage with a new one, often with different terms.
When Refinancing Helps
Lower monthly payment: Extend term or reduce rate
Remove someone from the loan: After divorce or co-borrower exit
Access equity: Cash-out refinance
Switch loan type: ARM to fixed, or remove PMI
Requirements
- Sufficient equity (usually 5-20%)
- Good credit (620+ for most loans)
- Stable income
- Acceptable DTI
Costs
Expect 2-5% of the loan amount in closing costs.
Timeline
30-45 days from application to closing.
Credit Impact
Temporary small drop (5-10 points) from credit inquiry. Long-term neutral to positive.
Option 3: Loan Assumption
Someone else takes over your mortgage.
How Assumptions Work
- New borrower applies to assume your loan
- Lender verifies they qualify
- Liability transfers to new borrower
- You’re released from the mortgage
Which Loans Are Assumable?
| Loan Type | Assumable? |
|---|---|
| FHA | Yes (with lender approval) |
| VA | Yes (with lender approval) |
| USDA | Yes (with lender approval) |
| Conventional | Usually no (due-on-sale clause) |
Why Someone Would Assume
If your rate is lower than current market rates, assumption is attractive.
Example: Your rate is 3.5% from 2021. Current rates are 7%. A buyer saves significantly by assuming your loan rather than getting a new one.
The Catch
The assuming buyer must:
- Pay you for your equity (down payment difference)
- Qualify with the lender
- Accept the existing loan terms
Credit Impact
None if properly assumed and you’re released from liability.
Option 4: Sell to an Investor (As-Is)
Sell quickly to an investor or “we buy houses” company.
When This Makes Sense
- Need to sell fast
- Property needs major repairs
- Can’t afford to list traditionally
- Facing foreclosure timeline
The Trade-Off
Speed: Can close in 7-14 days
Price: Typically 70-80% of market value
Example:
- Market value: $300,000
- Investor offer: $210,000-$240,000
No Repairs or Commission
Investors buy as-is with no real estate commission, which offsets some of the lower price.
Credit Impact
None—you’re paying off the mortgage.
Hardship Options
When you can’t afford your mortgage and selling isn’t viable.
Loan Modification
What it is: Lender changes your loan terms to make payments affordable.
Possible changes:
- Lower interest rate
- Extended loan term
- Principal forbearance
- Principal reduction (rare)
Process:
- Contact servicer about hardship
- Submit modification application
- Provide financial documentation
- Servicer reviews and decides
Timeline: 30-90 days
Credit impact: May be reported as “modified” but less damaging than foreclosure.
Forbearance
What it is: Temporary pause or reduction in payments during hardship.
How it works:
- Payments suspended for 3-12 months
- Missed payments must be repaid later
- Not forgiven—just delayed
Repayment options:
- Lump sum at end
- Payment plan
- Added to end of loan
- Modification
Credit impact: During COVID forbearance, no negative reporting. Otherwise, may be reported.
Short Sale
What it is: Selling for less than you owe, with lender’s approval.
When it’s needed:
- You’re underwater (owe more than home is worth)
- Can’t afford payments
- Want to avoid foreclosure
Process:
- List property with short-sale-experienced agent
- Receive offer below loan balance
- Submit offer to lender for approval
- Lender approves “short” payoff
- Close sale
Deficiency: Lender may forgive the difference or pursue you for it (varies by state and negotiation).
Timeline: 3-6 months (lender approval is slow)
Credit impact: Significant—similar to foreclosure (100-150+ point drop).
Deed in Lieu of Foreclosure
What it is: You deed the property to the lender instead of going through foreclosure.
When it works:
- You can’t sell (even short sale)
- You want to avoid foreclosure process
- Property has no other liens
Process:
- Request deed in lieu from servicer
- Provide financial documentation
- Negotiate terms
- Sign deed transferring property
- Vacate
Benefits over foreclosure:
- Faster process
- May negotiate relocation assistance
- Slightly better credit impact
Credit impact: Significant—similar to foreclosure but may be reported slightly more favorably.
Bankruptcy
What it is: Legal process that may eliminate or restructure debts.
Chapter 7: Liquidates assets, may include mortgage. Home typically foreclosed unless reaffirmed.
Chapter 13: Repayment plan. Can catch up on mortgage arrears over 3-5 years while keeping home.
When it helps:
- Overwhelming debt beyond just mortgage
- Need automatic stay to stop foreclosure
- Want structured repayment plan
Credit impact: Severe—7-10 years on credit report.
Foreclosure: The Last Resort
If you do nothing, the lender will eventually foreclose.
The Foreclosure Process
- Missed payments: Usually 3-6 months behind
- Notice of default: Formal warning
- Pre-foreclosure: Period to cure default
- Auction/sale: Property sold to highest bidder
- Eviction: If you haven’t vacated
Timeline
- Judicial foreclosure (court involved): 6-18 months
- Non-judicial foreclosure: 3-6 months
- Varies significantly by state
Consequences
Credit: 100-160 point drop, stays on report 7 years
Deficiency judgment: Lender may pursue you for remaining balance (state laws vary)
Future homeownership: May need to wait 3-7 years to buy again
Tax consequences: Forgiven debt may be taxable income
Why to Avoid Foreclosure
Other exit options—even short sale or deed in lieu—are generally better for your credit and financial future.
Comparing Exit Options
| Option | Credit Impact | Cash Needed | Timeline |
|---|---|---|---|
| Sell (with equity) | None | Minimal | 2-4 months |
| Refinance | Minimal | 2-5% costs | 30-45 days |
| Assumption | None | None | 30-60 days |
| Loan modification | Slight | None | 1-3 months |
| Forbearance | Varies | None | Immediate |
| Short sale | Significant | Minimal | 3-6 months |
| Deed in lieu | Significant | None | 1-3 months |
| Foreclosure | Severe | None | 3-18 months |
How to Choose
If You Have Equity
Sell the property. Use proceeds to pay off the mortgage and walk away with profit.
If You’re Underwater but Can Afford Payments
Consider waiting for appreciation, making extra payments to build equity, or refinancing if rates drop significantly.
If You Can’t Afford Payments
- Contact your servicer immediately
- Explore modification or forbearance
- Consider short sale if modification fails
- Deed in lieu as last resort before foreclosure
If You’re Already in Default
Act fast. The sooner you engage with your servicer, the more options you have.
Frequently Asked Questions
Can I just walk away from my mortgage?
Technically yes, but consequences are severe: foreclosure damages credit for 7 years, and the lender may pursue a deficiency judgment for remaining balance in some states.
How long does it take to get out of a mortgage?
Selling: 2-4 months. Refinancing: 30-45 days. Short sale: 3-6 months. Foreclosure: 3-18 months depending on state.
Will I owe money after foreclosure?
Possibly. If the property sells for less than you owe, the lender may pursue a deficiency judgment for the difference. State laws vary on this.
Can I sell my house if I’m behind on payments?
Yes. Selling while behind is often better than foreclosure. If you’re underwater, you’ll need lender approval for a short sale.
What’s the fastest way to get out of a mortgage?
Refinancing (30-45 days) or selling to an investor (7-14 days) are fastest. Traditional sale takes 2-4 months.
Will getting out of my mortgage hurt my credit?
Depends on how. Selling or refinancing has no negative impact. Short sale, deed in lieu and foreclosure significantly damage credit for years.
Sarah Mitchell
Licensed Mortgage Broker, 15+ Years Experience
Sarah has helped thousands of families navigate the mortgage process. She specializes in making complex loan information easy to understand.
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