Paying off your mortgage early, before selling, might seem like a good way to avoid mortgage payment confusion, assuming you have enough cash. However, there’s limited benefit to paying the mortgage in full before selling. Yes, it would allow you to offer seller financing to a buyer, but it also may set you up to owe more at closing. Why? Because you could be subject to a prepayment penalty, depending on the terms of your loan.
Can you have two mortgages at once?
Buying and selling at the same time can be financially and logistically challenging. If you are still holding the first mortgage when you apply for a second, you may have too high a debt-to-income ratio to qualify for your new loan. It’s also common for people to need the cash from their home sale to put toward their new down payment, so that presents an additional challenge.
If you don’t have the debt-to-income ratio or cash availability to juggle both transactions at once, you may need to sell your previous home first and wait until the transaction clears before you buy again. Depending on the state of your local market, you may be able to put an offer on a new home that is contingent on the sale of your old home.
A bridge loan is a temporary loan that allows you to borrow your down payment for your new home while waiting for the proceeds from the sale of your old home to be available. You will still need to qualify for your new loan while owning the old home, and you’ll have to be able to afford the cost of two mortgages plus bridge loan interest for a short period of time. Continue reading “Is it better to pay off your mortgage before selling?”