If I already own a house of which I am still paying a mortgage on, and I move to a new house. What happens in terms of mortgages when I sell my existing house to move to the new house?
In: 2
The money from the sale of your old home goes to pay off your existing mortgage, before you even get to see any of it. If the house sells for more than the payoff amount for the mortgage, then you get a check for the rest (minus typical expenses, like attorney fees, closing costs, etc.). Then, your old mortgage is completely done and gone.
To get a mortgage on the new home, you have to apply for (and receive) an entirely new mortgage, likely with new terms, interest rates, etc.
In theory, you could essentially work through the bank to kind of “transfer” your existing mortgage, in certain special circumstances, but that is rare.
Basically, what will normally happen is that depending on how much you’ve paid down your first mortgage, it will be paid off by the sale of the home. Now, if you haven’t paid much off of the principle of the loan (creating what’s known as equity), you may end up having to pay money out of pocket for closing costs, required repairs, etc. However, if your home has some equity in it and you sell it for more than you paid for it, you’ll be able to pocket that extra money.
For example, say you bought a home for $200K and were able to pay off $20K of the loan principle, you’d now have $180K left on the loan. If you were able to sell it for $220K, you’d pay off the loan and make $40K before closing costs.
Now, if you are wanting to buy a new home while also selling your current one, you’ll basically apply for a second home loan. Depending on your credit and debt-to-income ratio (DIR), you may only be able to make offers on new homes with the contingent of your first home selling before the closing date. Not a lot of sellers like to accept that as a condition though, so it may be harder to get sellers to agree to it until your first home is under contract to be sold.
This differs in different countries. Better to ask a local sub or just ask mortgage broker.
With proceeds from the sale of your old house, the mortgage balance gets paid off in full. You get the balance of that money.
You then get a new mortgage for your new home. Typically you’d roll proceeds from old home sale into down payment on new home. You might use a bridge loan or HELOC on old house to have funds for down payment available during contract period of purchase of new home.
The money is held by the bank until both sides of the process complete, then the bank gives you whatever money is left over from the sale, if any.
Latest Answers