Can You Move a Mortgage From One House to Another?

When transitioning from one home to another, many homeowners wonder if their existing mortgage can simply be moved to a new property. A mortgage is fundamentally tied to the specific real estate used as collateral, meaning it cannot be literally transferred. However, various financial strategies and specific loan features exist that homeowners consider when aiming to carry over aspects of their financing or acquire a new home. These approaches range from uncommon specialized options to the standard process of obtaining new financing. Understanding these mechanisms clarifies how your home loan fits into your plans for a new residence.

Understanding Mortgage Portability

Mortgage portability is a feature, sometimes offered by lenders, that allows a borrower to transfer their existing mortgage’s interest rate and terms to a new property. This process enables homeowners to maintain favorable loan conditions secured on their previous residence. While the concept suggests a direct transfer, it involves a new mortgage contract with the original lender.

To qualify for mortgage portability, homeowners must meet eligibility criteria, including maintaining a good credit history and a suitable debt-to-income ratio. The new property will undergo an appraisal to ensure it meets the lender’s valuation standards. The borrower needs to stay with their current lender to utilize this feature.

The process involves applying for portability with the existing lender, which includes a full re-qualification similar to applying for a new loan. If the new home is more expensive, any additional funds needed will be subject to current market interest rates, resulting in a blended rate for the overall loan. Fees, such as valuation and arrangement fees, may also apply.

A primary advantage of mortgage portability is retaining a lower interest rate from an older mortgage, which can be beneficial in an environment of rising rates. It can also help avoid prepayment penalties incurred by breaking the original mortgage contract. However, portability is not universally available, with many conventional US lenders not offering this option.

Assumable Mortgages

An assumable mortgage allows a homebuyer to take over the seller’s existing mortgage, including the remaining balance, interest rate, and original terms. This differs from portability, as the loan itself transfers with the property to a new owner. The buyer steps into the seller’s financial obligations for that specific loan.

Most conventional mortgages are not assumable due to “due-on-sale” clauses that require the loan to be paid off when the property is sold. However, certain government-backed loans, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA), are assumable. USDA loans can also be assumable under specific conditions.

For an assumption to occur, the new buyer must be approved by the lender, demonstrating creditworthiness and financial qualifications. For FHA loans, buyers need a credit score of at least 580 and a debt-to-income ratio of 43% or less, and the property must be their primary residence. The seller needs to ensure the loan is in good standing and should seek a formal release of liability from the lender to avoid future responsibility if the buyer defaults.

The benefits for a buyer include securing a lower interest rate than currently available on the market and lower closing costs compared to obtaining a new mortgage. For sellers, offering an assumable mortgage can make their property more attractive, especially when interest rates are high, speeding up the sale. A buyer needs to provide a down payment to cover the equity the seller has built in the home.

Financing a New Home Without Portability

For most homeowners, the most common approach to acquiring a new home is to obtain a completely new mortgage. This process involves selling the current home, using the proceeds to pay off the existing mortgage, and then applying for a new loan for the desired new property. This standard method ensures the new financing aligns with current market conditions and the borrower’s updated financial profile.

Applying for a new mortgage involves several steps, beginning with pre-approval to determine eligibility and loan amounts. Once a property is identified, a full application is submitted, requiring detailed financial documentation. This includes proof of income, such as recent pay stubs and W-2 forms, and asset statements like bank and investment accounts.

Lenders also review credit history, liabilities, and employment stability to assess risk. The new property will undergo an appraisal to confirm its value, and a title search will be conducted. The terms of the new loan, including the interest rate and down payment requirements, will be based on prevailing market rates and the borrower’s financial standing at the time of application.

In situations where a homeowner needs to purchase a new property before their current home is sold, a bridge loan can provide short-term financing. These loans leverage the equity in the existing home to cover the down payment or full purchase price of the new residence. Bridge loans have higher interest rates and shorter repayment periods, ranging from three months to one year, and are repaid once the former home sells.