If you’re thinking of selling your house and buying another, you may be wondering what happens to your mortgage in the process. The answer is that it depends on a few factors.
First, let’s talk about what a mortgage is. A mortgage is a loan that you take out to buy a house. The house serves as collateral for the loan, which means that if you stop making payments, the lender can take possession of the house to recover the money they loaned you.
Pay Off Your Mortgage
When you sell your house, you’ll use the proceeds from the sale to pay off your mortgage. If you have a remaining balance on the mortgage, you’ll need to pay that off as well. Once the mortgage is paid off, you’ll have whatever money is left over from the sale of your house.
Buying a New House
Now, let’s talk about buying another house. If you’re buying a new house that costs less than the one you sold, you may be able to use the leftover money from the sale of your old house to pay for the new one outright. However, if you’re buying a more expensive house, you’ll likely need to take out a new mortgage.
When you apply for a new mortgage, the lender will look at your credit score, income, and debt-to-income ratio to determine how much they’re willing to loan you. If you still have a mortgage on your old house, that will count as debt in your debt-to-income ratio, which could affect your ability to qualify for a new mortgage.
One option you may have is to take out a bridge loan. A bridge loan is a short-term loan that you can use to cover the gap between the sale of your old house and the purchase of your new one. This can be helpful if you need to buy a new house before you’ve sold your old one, but it can also be risky, as you’ll need to pay off the bridge loan quickly and the interest rates can be high.
When you sell your house and buy another, you’ll use the proceeds from the sale of your old house to pay off your mortgage. If you have leftover money, you can use it to buy your new house outright or put it towards a down payment. If you need a new mortgage, you’ll need to go through the process of applying for one and qualifying based on your credit, income, and debt-to-income ratio.