June 7th, 2019 12:52 PM by Jackie A. Graves, President
landed a new job — across the country — or your family is growing (again).
Regardless, the plan is to put your existing home on the market and buy a new
one. That means you’ll be paying the mortgage on your existing home (until you
close on its sale) and, at the same time, you’ll be putting together earnest
money and a down payment for a new home.
your savings habits and how long you’ve anticipated the move, money might get
tight. Or you may not have owned your home long enough to have much equity to
use in buying your new home.
It’s not an uncommon challenge. According to the Zillow Group Consumer Housing
Trends Report, 64% of buyers in 2017 were repeat buyers, likely juggling both a
home sale and purchase. Many homeowners opt for a sale and settlement
contingency, but if that doesn’t seem like the right fit for you and your
family, there are several options to help you navigate the situation.
If you don’t
have money for a down payment but do have a lot of equity in your current home,
you could consider taking out a second mortgage to finance your down payment.
There are two options to consider: a home
equity line of credit (HELOC) or home equity loan.
allow you to borrow against the equity in your home. The main difference is
that with a HELOC, you’ll get a credit line that you can borrow against,
similar to a credit card. With a home equity loan, you’ll get a lump sum of
cash. For both you’ll be paying interest on the amount you borrow each month.
Got a HELOC, the interest rate is usually variable, and a home equity loan
typically has a fixed rate. The good news is that you can pay down a home
equity loan as quickly as you’d like to lower monthly payments on the credit
If you’re considering taking out a home equity loan or HELOC, you’ll need to
act very early in the process since lenders considering you for the loan on
your new home will want to see that the money has been in your bank account for
If you have
the flexibility with the timing of your move and your credit is strong,
consider putting your existing home on the market while buying your new home
with a low-down
you, the lender will add your current mortgage payments to your monthly debt to
determine your debt-to-income
ratio (DTI). This ratio compares your monthly recurring
payments to your gross monthly income. Most lenders want your DTI at no more
than 43 percent.
qualify, there are several options. Conventional loans available from
participating lenders and backed by Freddie Mac and Fannie Mae offer 3% down to
qualified buyers. FHA-backed loans start at 3.5% down. Servicemembers can apply
for VA loans, which require zero down. Or if you’re buying property in a rural
area, you may qualify for a zero-down loan backed by the USDA.
There are also some specialized loan types that may be ideal for a sell-buy
loan provides a first and second mortgage simultaneously, covering 80% of the
home’s purchase price.
type helps buyers avoid private mortgage insurance (PMI) while making a down
payment of less than 20%. Piggyback loans are also advantageous when you sell:
You can pay off the second mortgage with the proceeds from your sale and be
left with a single, smaller first mortgage just as if you had made a larger
down payment in the first place.
they work. The first mortgage is for 80% of the home’s purchase price. A second
loan, a home equity loan, is opened at the same time for 10% of the price. The
borrower is then responsible for making a 10% down payment out of their own
Some lenders will offer variations on the loan/payment ratios such as allowing
a 15% second mortgage and a 5% down payment.
type to consider is a bridge loan. Bridge loans alleviate the need to make a
contingent offer, but they can cost more in fees than a home equity loan.
are temporary loans that bridge the gap between the sales price of a new home
and a buyer’s new mortgage. It is secured by the buyer’s existing home. The
funds from the bridge loan are used as a down payment for the new home.
interested in a bridge loan, talk to a lender to find out their requirements.
Some lenders that make conforming loans exclude the bridge loan payment for
qualifying purposes. This means the borrower is qualified to buy the move-up
home by adding together the existing loan payment, if any, on the buyer’s
existing home to the new mortgage payment of the move-up home.
If the new
home mortgage is a conforming loan, lenders may be able to accept a higher DTI
by running the mortgage loan through an automated underwriting program. If the
new home mortgage is a jumbo loan, most lenders will accept up to 50% DTI.
payment structures of bridge loans vary. For example, you might be able to skip
making payments on the loan for the first few months. However, during that time
interest will accrue and be due when the loan is paid upon sale of your
existing home. In addition, there will be a loan origination fee, which can
average about 1% of the loan amount.
existing house and buying a new house at the same time is going to be
But take your
time. Do your homework. And don’t feel overwhelmed: there are real estate pros,
agents and lenders, to help you.
If you’re in
a market where making a contingent offer is difficult, remember there are loan
options to help you be a more competitive buyer and land the home of your
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