Buying before you sell can prevent you from moving twice and alleviates the worry of being homeless. There are several ways to do this. Not all of these strategies will work for everyone, so make sure to talk to us, your lender and sometimes your tax person to see what route meets your individual situation.
This is a purchase agreement written on the new home which requires first the sale of your current home. In a competitive market the seller would rather work with buyers who can close quickly without any complications. Sellers in this market, are usually in a position to call the shots and rarely is a contingent offer accepted. If you must write a contingent offer, you position yourself better if your current home is under contract, and there are no other contingencies except successful closing.
HELOC or home equity loan
This is a revolving line of credit which is secured against your current home. In this type of loan you are borrowing a part of the equity from your current home to use as a down payment, fix up costs, or costs incurred carrying two mortgages for a period of time. When you pay off your current home the home equity line of credit must be paid off in full. Before initiating this process make sure you can qualify for two mortgages. Since the lender knows that owning two homes is not your long term plan they will often allow to have a much higher debt to income ratio.
If you are ready to put your home on the market as soon as you secure the next home, it is not uncommon for the closing to be able to be coordinated for the same day, thus minimizing costs for the equity loan. (There still would be minimal costs of an appraisal and set up costs.) After closing on your first home if you have a significant amount (over 50,000) that you would like to put down on your new home most lenders will allow you to have the new mortgage recast for around $500.00 and lower your monthly payments or you can always put any additional amount down at any time and have it taken off the back end, shortening the length of the loan.
Knock, Buy Sell
The mortgage industry has developed many new programs to help you get into your next home using equity from your current home. With the Knock program, typically you will need at least 30% equity in your current home. Knock will then provide you with a loan to purchase the home as a cash buyer. Then when you close on the home you must refinance using one of their approved lenders. Results Mortgage is one of these approved lenders.
This is a temporary loan just until new financing can be obtained. It is a short term loan to create a “bridge” to take you from where you’re at, to where you want to be. This loan can be for 1 to 18 months and typically is a higher interest rate than a home equity line of credit. Remember anytime you qualify for a mortgage the lender will take into consideration all of your debt which would include the mortgage on your current home, the bridge loan and your new home.
Taking out a loan which is backed by your 401K is sometimes an option. The IRS restricts how much you can borrow and not all the plans allow you to borrow against them. If you take cash out you may be subject to potential tax implications and if you borrow against it, it will be counted as debt. So always make sure to seek advice before going this route.
Financial gift from a family member
It must be a gift not a personal loan to not count in your debt-to-income ratio. Depending on the amount of the gift there could be tax implications for the giver.
New Construction often takes 6-12 months to complete the new home. As your home gets closer to completion you can put your home on the market. When the builder gives you a closing date you can let potential buyers of your home, know what your preferred closing date would be, allowing you to only move one time.
Rent back or selling your home contingent on the seller finding a home of their choice.
When you put your home one the market you can request that the buyer be willing to rent back your property or allow you a flexible closing date which allows you to find the new home of your choosing. In a market like this, buyers may be very accommodating in order to get into a home.
Short term housing/Renting or living with family or friends
This involves two moves but gives you the chance to sell your home and look for the new one at your own pace to find exactly what you are looking for.
There are many different options to be able to buy first and then sell. Give us a call and we can help you figure out what option would be best, given your individual set of circumstances and finances.