What Happens to Your Mortgage When You Move House?

Moving to a new home often involves navigating your existing mortgage. Understanding the available options for your mortgage during a relocation is important for financial stability. This article clarifies the various options and processes involved in handling a mortgage when you decide to move.

Managing Your Existing Mortgage When Moving

Homeowners have several options for managing their existing mortgage. The most common approach involves selling the current property and using the proceeds to pay off the outstanding mortgage balance. Any remaining funds, known as equity, can then be used towards a down payment on a new home. This method provides a clear financial break from the previous property.

Another option is mortgage portability, or “porting,” which allows a homeowner to transfer their existing mortgage to a new property. This process requires lender approval based on eligibility criteria like creditworthiness, the new property’s value, and loan-to-value ratios. If the new home is more expensive, additional borrowing might be necessary, potentially leading to new terms. While porting can sometimes preserve favorable interest rates, it is not universally available or always the most financially advantageous choice.

Alternatively, some homeowners choose to retain their current home and convert it into a rental property. This may require refinancing the existing mortgage into an investment property loan. Such loans often come with different terms, including potentially higher interest rates or varying down payment requirements compared to owner-occupied mortgages. Becoming a landlord also introduces new responsibilities, such as property management and tenant relations.

Obtaining a Mortgage for Your New Residence

Securing a mortgage for a new residence requires obtaining a pre-approval. This provides a clear understanding of how much a lender might be willing to loan. Lenders typically require information for pre-approval, including income verification, employment history, credit scores, existing debts, and a summary of assets. This assessment helps establish a realistic budget for a new home purchase.

To facilitate the pre-approval and full mortgage application, gather specific documents beforehand. These include pay stubs from the most recent 30 to 60 days, W-2 forms from the past two years, and tax returns for the last two years. Lenders also request bank statements to verify funds for down payment and closing costs. A government-issued identification and a Social Security card are also necessary.

Once these steps are complete, the application process begins with submitting information to a lender. The mortgage then enters the underwriting phase, where the lender verifies the provided information, assesses financial risk, and orders an appraisal of the new property along with a title search. This stage ensures the property’s value supports the loan amount and that the title is clear. The underwriting process typically takes between 30 to 45 days.

Upon successful completion of underwriting, the loan reaches the approval and closing stage. The borrower receives a clear-to-close notification, indicating final approval. A Closing Disclosure document, outlining the final loan details, interest rate, monthly payment, and exact closing costs, is provided at least three business days before the scheduled closing date. The closing involves signing legal documents, transferring funds, and taking ownership of the new home. The entire process from application to closing generally takes between 30 to 60 days.

Key Financial Considerations for Your Relocation

Relocating involves numerous financial aspects beyond the mortgage. When selling a home, transaction costs are incurred, including real estate agent commissions, which typically range from 5% to 6% of the sale price. Seller closing costs, excluding commissions, can add another 2% to 4% of the sale price, covering items such as transfer taxes, attorney fees, and owner’s title insurance. Sellers might also incur expenses for home staging or necessary repairs.

Purchasing a new home also comes with its own set of transaction costs. Buyers are responsible for the down payment, which can range from a few percent to 20% or more of the purchase price, influencing loan terms and whether private mortgage insurance (PMI) is required. Closing costs for buyers typically fall between 2% to 5% of the loan amount, encompassing lender fees, appraisal fees, title insurance, and escrow fees. These costs also include prepaid expenses like property taxes and homeowner’s insurance premiums.

Beyond property transactions, direct moving expenses contribute to the overall financial outlay. These costs can include hiring professional movers, purchasing packing supplies, or renting a moving truck, with prices varying based on distance, volume of belongings, and services chosen. Planning for these logistical expenses helps prevent unexpected financial strain.

A significant financial consideration is the potential for overlapping costs, particularly if the sale of the old home does not coincide perfectly with the purchase of the new one. This can necessitate managing two mortgage payments simultaneously for a temporary period. Bridge loans offer a short-term financing solution to cover the gap between transactions. They typically carry higher interest rates, often 2% to 3% higher than conventional loans, and involve their own closing costs, which can range from 1% to 3% of the loan amount.

Leveraging home equity from the sale of the previous residence is a strategic financial move. The equity released can be directly applied towards the down payment on the new home, reducing the amount needing to be financed. This approach can lead to lower monthly mortgage payments and potentially save a significant amount in interest over the life of the new loan.