Your second mortgage is now a first mortgage since it is your only mortgage. When you sell your house, the closing agent will receive the proceeds from the buyers bank and cut a check to the bank holding your mortgage since they have a title lien on the property and title cannot be transferred without their removing their lien. After all other costs and expenses of closing are met, you will receive the balance.

The way a closing works is that the title company or the closing attorney will run a lien search and your mortgage will show up. The title co will collect all the funds for the closing from the buyer(s) and give you the proceeds after paying off everything you owe - including the outstanding balance of the mortgage. This is a very standard type of process where all the expenses are paid during the post closing process and you receive your proceeds net of the expenses. The closing statement will show you each itemized expense and it's amount due. You get a copy of it prior to closing and after closing when all the parties have signed it.

The lender provides the payoff amount to the title co prior to closing. You have other fees that are due which vary slightly from state to state. For example, some of those expenses include pro-rated property taxes from the first of the year to the date of closing, title closing fees, title search fees, title insurance (negotiable), real estate commissions (if applicable), HOA pro-rations if applicable, recording fees, transfer taxes (county or state), estoppel fees and municipal lien search fees.

You aren't entering into a contract with the new lender until you sign for a new mortgage on the new home. You are speaking to a lender or several and making an application, but not actually signing the mortgage until you close on the new house (typically). It is common for the new lender to want to see your signed closing statement from the sale of your current home so they can track the proceeds. They want to know that it is actually sold (your current home) and they want to see the signed closing statement as part of the proof of sale.

It is perfectly normal to want to pay off debt from the sale of your new home. You just need to work with your loan officer so they are aware of your plan to pay of $X debt. You may want to wait a bit between homes if you are truly debt heavy. I mention that because if you pay off or pay down significant debt, then your credit score will increase and you may end up with substantially better terms. A good Realtor and loan officer can walk you through the various options so you can get the best possible mortgage on the new home.

Great answers everyone. This is all a big help. I've got a good idea where to go now. Thank you all!

Others have explained the mortgage and financing very clearly. I would just suggest you get a good idea of prices where you are going, so there are no nasty surprises if reducing debt is an objective. I know that, when we sold our previous home to move interstate, the new one (same size and quality of finishing, on a smaller lot than the previous one), cost almost twice as much as what we had sold for. Fortunately, we knew what we were getting into.

Also, a bridge loan is not necessarily needed. You may be able to get pre qualified for your new home while still having a mortgage on the existing home.

Your first step would be to get in contact with a couple lenders. You will then know what options you have.

Your seconfd mortgage is the only mortgage so no longer a second so I see no problem as for your other debts they have nothing to do with your mortgage.

@Patricia, the other debt does impact what he can buy in the new location if that debt is large enough. The total debt ratio includes the proposed new mortgage payment plus the monthly payments on the outstanding debt.