Is it too risky to buy a house before I sell my house? No, in fact this article lists two possible solutions to get you into your new home while you close the deal on your former home. First, pull the equity out of your existing house using a home equity line of credit or a second mortgage. Reserve enough of this money to make your former house payment for six to twelve months. Your house will take this long to market and with the money set aside you won’t be tempted to take a low-ball offer. Use the remainder as down payment and get your new first mortgage to complete the purchase. When the former house sells, both mortgages are liquidated and you are left with one house and one mortgage…the exact same situation you’d have had if you sold your former home before you bought the new one. But you accomplished it without the wait and the missed opportunity!
Another way to achieve the same result minus the “old” house payment reserve is to use an 80% first mortgage and a 20% 2nd mortgage also called 100% financing, to buy the new house. You won’t have to put any money down and when your “old” house sells, you use the proceeds to pay off the 2nd. The only difference is you don’t get any “extra” money to use to offset two house payments during the marketing period. Many of you, have existing lines of credit or other sources, so this may not be necessary. Both scenarios leave you with great permanent financing on the new house.
The biggest hurdles you’ll need to clear are:
1) making two housing payments and
2) getting loan approval with two housing payments. Here’s how you do both, when you pull the money from your existing house, reserve enough to cover up to 12 months mortgage payments for the “old” house while it is on the market. That way you don’t have to come out of pocket for the payment. Gee, that was easy! Hurdle 1 cleared!
Since most loans are approved through a computer these days, you’ll need a mortgage broker who knows how to use the automated approval computer systems that FNMA and other agencies and lenders use. These approval systems are a Godsend when it comes to creative financing in today’s modern mortgage arena. It may seem strange to you, but to the computer, your financial picture and your need for financing, are simply numbers. It doesn’t care that some of those numbers include 2 housing payments. The new systems are allowing many of our clients an approval with abnormally high debt ratios, sometimes as high as 60%! This is very prevalent, especially with clients who have strong credit and assets after closing…like a 401K. This is your window for approval. Now, you know you’ll not be spending 60% of your income on debt, because you put the money aside in Step 1 to cover the “old” house payment, but the computer doesn’t know that or care. If done right, you’ll get the approval even with very high debt ratios.
In summary, to sell, purchase your new home before the former home sells:
1) Get approved through the automated system.
2) If you need to pull equity out of existing house; start it now.
3) Write an offer on a new house.
4) When offer is accepted, put existing house up for sale; not before.
Let the professionals at Crown Realty Experts help you with your home sales.
