How to Buy a House while Selling Your Own
If you’re in a hot seller’s market where homes are selling quickly, you may find yourself in a position to put an offer in on a new home before you have sold your current home. But what options do you have if you are buying a new home that is move-in ready?
First, determine if you can qualify to carry both mortgages at once. Since you will own two homes at the same time, you will have two mortgage payments due each month. Therefore, your lender will want to make sure you can afford both mortgage payments. If you cannot qualify for both mortgages at the same time, you may be able to rent your current home. By renting your current home, the rental income may be used to help you qualify to carry both home mortgages. Before renting your home, be sure to consult your lender since additional paperwork and financial reserves may be required. Financial reserves include money from savings or investments, like a 401(k), that can be used to make payments on the old home should you be unable to rent the home.
Next, figure out how much you can afford to put towards a down payment. Since you will not have access to the proceeds from the sale of your old home to buy your new home, there are some financing options that can help you secure your next home today and use the proceeds from your home sale down the road. Ask your lender if they offer a first and second mortgage combination loan, often called a “piggyback” loan. Piggyback loans allow you to put down as little as 5% and borrow the remaining 95% by taking out a first mortgage for 80% and then a second mortgage for 15%. Once your home sells, you then use the proceeds to pay off the 15% second mortgage.
A second option would be a 5% or 10% down conventional loan. Once your home sells, you can use the proceeds from the home to initiate a mortgage loan recast. A loan recast is where the borrower makes one large payment towards principal on their mortgage loan, and the loan is then re-amortized with the new lower balance. This option will lower your monthly payment but does not affect your current rate or the terms of your loan. Loan recasts typically require a lump sum payment in excess of $5,000, and the lender will likely charge a small fee. Not all loan types or lenders allow for a recast option, so be sure to check with your lender if you anticipate using this option.
Lastly, buying a new home before selling your old home may come with the added advantage of time. If you already have your new home, you will have plenty of time to pack and move your belongings, which can make the process much less stressful. It may even allow you time to make needed improvements to your current home, so you can sell for top dollar. Additionally, if you are buying new construction, you may have an advantage because you have extra time to sell your current home while your new home is being built.
By: Marlene Sheard
Marlene is a mortgage marketing representative for Ameris Bank and previous sales and marketing president for her local Home Builders Association. She enjoys sharing her experiences for the buying, selling, and financing of homes.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Source for recast info: https://www.bankrate.com/mortgages/what-is-mortgage-recasting-and-why-do-it/