How to Buy a New Home and THEN Sell Your Current One

What If I Need or Want to Buy A New Home without Selling My Old One?

Let's face it -- sometimes you would REALLY rather buy your new home before you sell your old one.  Maybe it's because you have a lot of pets that buyers won't love, or just that you want time to make a leisurely transition between old and new.

Full disclosure -- if you don't have excellent credit and the income to qualify for two home loans, you probably can't manage this.  However, if you do, read on!

Temporarily Carry Two Mortgages

You may be able to simply get another loan on the home you’re buying and keep the one you have.  Lenders will look at your debt-to-income ratios.  Your “front-end ratio” is the anticipated combined mortgage debt to your gross family income, and lender standards set this somewhere in the mid-30% range – 35-37%.  Your "back-end ratio" is all debt to gross income – usually something into the mid-forties is allowed. This includes both of your anticipated mortgages plus any auto, credit card payments, etc. (This is why your Realtor and Lender will advise you NOT to buy anything on credit while your loan is being processed.  You might accidentally exceed one of your ratios and not qualify for your mortgage!) 

If you get a new loan but intend to sell your old home and pay off the old loan, the ability to "re-amortize" your new loan is critical.  You can always pay down the principal of a mortgage whenever you want, but normally your payment will not change throughout the life of the loan.  If you have a right to re-amortize your new loan, you can apply the proceeds from the sale of your old home and reduce the payment on the new one. The lender will usually charge a fee (maybe $500), but if you can pay your new loan down by $100,000 and save $700/month, you won't mind paying it!

You will need to ask lenders if you can re-amortize your new loan BEFORE you sign on for it.  If you get a loan from a lender that won't re-amortize, you would have to re-finance to use the proceeds from the sale of your old home to pay down the mortgage on the new one -- much more costly in most cases.

Use The Equity in Old Home as Down Payment on New One

You can get a Home Equity Line of Credit (HELOC) on your existing house, borrowing much (maybe 80%) of your equity as a down payment on the new home.  You would pay off that HELOC and your mortgage when you close on the old home. 

If you think the remainder of your equity in your existing home would change your payment in the new one to a meaningful extent, you may also want to have the right to re-amortize your new loan if you use this strategy.

Some lenders won't give you an equity loan if they know you will be selling the house -- ask first.

Bridge Loans

These aren’t as popular as they once were, but sometimes they're the best option.

Lenders that offer brige financing today may pay off your old loan when you buy the new home, and finance BOTH homes with an interest-only loan until the old one sells. When the old home closes, you retire the debt on it and do a "permanent" loan on the new one. Sounds simple, but only a small percentage of lenders now offer these loans... and, the way they do it can be substantially different.  You will probably have to pay for appraisals on both homes if you do one of these, but it can still be the best  option.

Note:  We also handle property sales for real estate investors.  The tactics mentioned above are different for investors, so please call if you have questions!

We are not experts in mortgage lending, but we know plenty of them!  If you have any interest in more details about these strategies, please Complete the form below  and we will direct you to the proper experts!

 

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