How Do I Get Out of a Mortgage?

You get out of a mortgage by paying it off or by getting the lender to release you from it. If your home is worth more than you owe, selling it, or refinancing or having a buyer assume the loan to take your name off it, ends your liability, though paying off the mortgage can temporarily lower your credit score. If you owe more than the home is worth, a short sale or deed in lieu of foreclosure can avoid a foreclosure sale, but release from remaining debt depends on the lender's agreement and state law; for a Fannie Mae loan, either option shortens the wait for your next mortgage from 7 years to 4. Walking away leaves a foreclosure on your credit report for up to seven years and, in states that allow deficiency judgments, liability for the unpaid balance.

How do the exits compare?

The table compares the options for a primary residence.

Selling the home

If you have equity (the home's value minus what you owe), a sale pays off the mortgage at closing and ends your liability. You must leave enough room for selling costs, such as agent commissions and transfer taxes, or you will need cash at closing to cover the gap.

Tax on any profit is often zero. If you owned the home and lived in it as your main home for at least 24 months of the 5 years before the sale, and did not exclude gain on another home sale in the prior 2 years, you can exclude up to $250,000 of gain from income under IRS Publication 523. A married couple filing jointly can exclude up to $500,000 if both spouses meet the residence test.

Taking your name off the loan: refinance or assumption

Removing yourself from a mortgage while someone else keeps the home, common after a divorce or a co-owner buyout, takes one of two routes:

• Refinance. The person keeping the home takes out a new loan in their own name, which pays off the old one. They must qualify on their own income and credit. Refinancing usually also requires closing costs and fees. If the deal also transfers your ownership share for a payment, ask a tax preparer how the transfer is taxed. What refinancing a mortgage means explains how a refinance works.
• Assumption with a release of liability. The other person takes over the existing loan. On an FHA loan, the servicer underwrites the person assuming the loan and prepares HUD's form 92210.1 to release the original borrower. Whether other loans can be assumed depends on the loan type and the note, so ask your servicer.

Deeding the home to a spouse or ex-spouse does not by itself release you. Federal law bars the lender from calling the loan due on a transfer to a spouse or child or under a divorce decree, but your signature on the note still makes you liable until a refinance or formal release.

Renting it out

Converting the home to a rental keeps the mortgage in place, so it works only if rent covers the payment, taxes, insurance, and repairs. Check two things first:

1. Occupancy promise. An FHA borrower must move in within 60 days of closing and intend to live there for at least one year. For any loan type, read the occupancy section of your mortgage, and if you need to move out within the first year, ask your servicer before you sign a lease.
2. The due-on-sale clause. A lease of three years or less with no option to buy does not let the lender call the loan due on a home with fewer than five units. A lease with an option to buy, or selling the home to someone who keeps paying your loan, can.

Short sale or deed in lieu when you owe more than the home is worth

Both options need the servicer's approval, and both usually require a hardship. Ask for them at the same time you apply for help to keep the home; the alternatives to foreclosure explains how to apply.

• Short sale. You sell for less than you owe and the lender accepts the proceeds. Freddie Mac requires an arm's-length sale (to a buyer with no family or business ties to you) listed with a licensed broker on the multiple listing service (MLS). On FHA loans, lien holders forgive the remaining balance, and an owner-occupant who sells in good faith can receive up to $3,000.
• Deed in lieu of foreclosure. You sign the home over to the lender and move out. Freddie Mac requires clear title, so second mortgages and other liens must be resolved first. FHA does not pursue a borrower who completes a deed in lieu for the deficiency and offers an owner-occupant up to $3,000 in relocation help.

For any loan, get the approval in writing, and confirm that it says the lender waives the remaining balance (the deficiency). Without that, whether the lender can pursue you depends on your loan and your state's law.

The tax bill. When a lender forgives debt you were personally liable for, the forgiven amount is generally taxable income, and you may receive Form 1099-C. The exclusion for forgiven mortgage debt on a main home applies only to debt discharged before January 1, 2026, or under a written arrangement entered into before that date, so most 2026 short sales and deeds in lieu do not qualify. You can still exclude debt canceled in bankruptcy, or, if you were insolvent (your debts exceeded the value of your assets) right before the cancellation, up to the amount by which you were insolvent. If you were not personally liable for the loan (a nonrecourse loan), forgiveness creates no canceled-debt income, though the transfer can produce a gain or loss.

Walking away and letting the lender foreclose

If you stop paying and do nothing, the lender forecloses. The foreclosure can stay on your credit report for up to 7 years. Fannie Mae requires 7 years from the foreclosure's completion before a new conventional loan (3 years if you document extenuating circumstances, meaning a one-time event beyond your control such as a layoff or medical crisis, and then only for a principal residence purchase with at least 10 percent down), and FHA generally requires 3 years. If the sale brings less than you owe, a lender in a state that allows deficiency judgments can sue you for the rest. Choosing to walk away while you can still pay is called a strategic default, and what a strategic default costs covers it.

For a Fannie Mae loan, the wait is shorter after a short sale or deed in lieu: 4 years, or 2 with extenuating circumstances. FHA's wait is 3 years after any of the three, but FHA also allows a new loan right away after a short sale if you made every mortgage and installment payment on time for the 12 months before it. How a foreclosure affects your credit and future options compares rebuilding timelines, and what foreclosure is and how it works covers the process.