What Happens to Your Mortgage When You Move?

Moving to a new home involves understanding the financial aspects of your existing mortgage. The process generally involves specific steps to manage your current home loan as you transition to a new property. This transition requires careful attention to how your current mortgage is resolved and how new financing is secured. It is important to know the standard procedures and some less common alternatives that might apply to your situation.

The Standard Process: Paying Off Your Current Mortgage

When you sell your home, your existing mortgage is typically paid off at closing. A closing agent facilitates this process. They ensure all financial transactions related to the sale are correctly executed.

The closing agent obtains a “payoff statement” from your mortgage lender. This document details the exact amount required to satisfy your loan, including principal, accrued interest, and associated fees. This statement typically has a “good-through” date, valid for a specific period, usually 10 to 30 days.

Proceeds from the sale of your home primarily cover the outstanding mortgage balance. For instance, if your home sells for $400,000 and your mortgage payoff is $250,000, the first $250,000 goes directly to your lender. The remaining funds, after deducting other closing costs such as real estate commissions, title insurance, and transfer taxes, are then disbursed to you.

If sale proceeds are not enough to cover the mortgage balance, the seller is responsible for bringing the deficit funds to the closing. Once the mortgage is paid, the lender releases the lien on the property, allowing the transfer of clear title to the new buyer.

Financing Your Next Home

Securing a new mortgage typically begins with a pre-approval process. This involves a lender reviewing your financial information, such as income, assets, and credit history, to determine how much they might be willing to lend. A pre-approval provides an estimate of your borrowing capacity and demonstrates to sellers that you are a serious buyer.

After an offer is accepted, you proceed with a formal mortgage application. This stage requires submitting detailed financial documentation, which lenders use to verify your eligibility and financial standing. The application then moves into underwriting, where the lender assesses the risk of lending and reviews the property’s value.

An independent appraiser conducts an appraisal of the new property to ensure its value supports the loan amount. Lenders require this to protect their investment, ensuring the property is worth at least the amount borrowed. This step helps mitigate risks associated with over-lending on a property.

The final stage is closing for your new mortgage. All parties sign the loan documents, and funds are disbursed. Common types include fixed-rate mortgages, where the interest rate remains constant, and adjustable-rate mortgages (ARMs), where the interest rate can change periodically. Closing costs, typically 2% to 5% of the loan amount, are paid by the buyer and include fees for origination, appraisal, title insurance, and recording.

Exploring Less Common Mortgage Scenarios

While most homeowners pay off their existing mortgage when moving, less common scenarios can occur. Mortgage assumption allows a new buyer to take over the seller’s existing mortgage. This is rare and limited to specific loan types, such as certain Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loans, which have assumable clauses. When a mortgage is assumed, the original borrower may be released from liability if the lender approves the new borrower.

Another scenario involves converting your existing home into a rental property. If you decide to keep your old property as an investment, your current residential mortgage will likely need to be refinanced into an investment property loan. Lenders usually have different requirements and higher interest rates for investment properties compared to owner-occupied homes due to the perceived increased risk. This change ensures the loan terms align with the property’s new use.

Mortgage portability, though uncommon in the United States, allows a homeowner to transfer their existing mortgage terms, including the interest rate, to a new property. This option is highly dependent on the specific lender and the original loan agreement. If portability is available, the original mortgage terms, such as the interest rate and remaining amortization schedule, would generally apply to the new home, potentially saving the borrower money if interest rates have risen.

A bridge loan can provide temporary financing when there is a gap between selling one home and buying another. This is a separate, short-term loan that is secured by your current home and sometimes your new home. It allows you to access equity from your current home to use for a down payment or other costs on your new home before your current home officially sells. A bridge loan does not alter your existing mortgage but rather provides a financial temporary solution to bridge the funding gap.