How Existing Homeowners Can Sell and Buy
Current homeowners wishing to sell their current home and purchase a new one face a few challenges in the existing market. Inventory is still relatively tight, which means desirable properties are likely to sell quickly. In regard to the sale of your property, this is great news! But it also means that you may have a narrow window of time to find your new home if you wait to sell before looking at new properties to purchase.
Assuming temporary housing or a short-term rental is not in your plans, it is best to start looking for new homes before you put your current house on the market. This allows you time to find the home you really want vs. having to find a home within a few weeks and only being able to choose from homes that are on the market at that time.
Once you have identified a property you wish to buy, you have a few options in terms of ways to facilitate the sale of your property and the purchase of your new one.
If you can find a seller of a property that is willing to accept a contract that is contingent on your home selling, that may be ideal, but that is unlikely in today’s market, especially for highly desired properties.
However, every transaction is different, and sellers all have different circumstances, so they may be fine with a longer contract period that gives you time to sell. Your Realtor will be able communicate with the sellers Realtor to determine if this is acceptable.
If you have the income to support additional mortgage payments, you may qualify for a bridge loan. A bridge loan is in effect an advance on the equity of your current home. This allows you to get the equity of your existing home before selling it so that you can close on the new home before selling your existing property.
Local Mortgage provides bridge loans as second liens against your current property, giving you up to 90% of the appraised value less the balance of any existing first mortgage debt. For example, if your current home is worth $500,000 and you owe $300,000, you could get a bridge loan of $150,000 to use towards the down payment and closing costs on the new home.
Bridge loans are generally short-term loans for six months that have interest only payments. Until your home sells, you will have 3 mortgages: the current first on the existing home, the bridge loan, and the new mortgage on the home you purchase.
Just Buy It
Of course, if you have the income to support both mortgages and the cash available for down payment, you can just purchase the new home and then sell your existing home when convenient. In this case, recasting your new mortgage may be of interest to you.
A recast is an alternative to refinancing your mortgage when making a lump sum principal reduction to your balance. This allows you to lower monthly mortgage payment to reflect the new lower balance. You retain the current interest rate and loan term, but the payments are recalculated based on the new balance after the principal reduction.
In conclusion, existing homeowners wishing to move have a few options to consider. Each one has its advantages, it’s just a matter of figuring out a game plan that works for you. Working with an experienced, professional Realtor and mortgage Loan Officer will make this easier as they will be able to communicate your options and help you accomplish your home buying goals.