Picture this: You’ve been happy in your current residence for a few years when that perfect home you’ve had your eye on goes on the market. Can you realistically buy and sell a house at the same time?
It’s possible with the right financing game plan and prep work. Juggling two mortgages simultaneously may not be easy, but there are creative options to consider that can make your dream home happen.
What's in this article?
The trick is going into the process prepared and getting clear on what you can realistically afford.
We’re going to show you what to do in the event that you find your dream home while you already own a different home.
Assess your financial situation
Before exploring specific financing tactics, understand your overall financial position.
Consider your income stability, monthly budget, credit score, current debt obligations and motivations for buying before selling.
This will determine if you can realistically take on two home loans, even temporarily. Also, assess timeframes, such as how quickly you can prepare your current home to list for sale.
Clarifying your circumstances and goals is key for devising a customized buy-before-sell action plan.
Carefully examine if you have the means and commitment to buy another home before your current one sells. This provides a firm foundation to explore suitable financing strategies.
Ready To Take Your Next Step?
Bridge loans: Temporary financing solution
A bridge loan allows you to borrow against the current equity in your home to finance the down payment on a new home before you sell your old one.
This interim loan bridges the gap, letting you buy first by covering both mortgages temporarily until you sell.
Bridge loans typically have a shorter term of up to 12 months, with interest-only payments due during that timeframe. You repay the bridge loan entirely when you close on the sale of your initial property.
Bridge loans enable you to move quickly to purchase your next home without selling first. This flexibility allows you to capitalize on favorable market conditions or competitive properties.
Remember that bridge loans come with higher interest rates and hefty fees compared to traditional mortgages. Work closely with your lender to see if a bridge loan aligns with your timeline and budget.
Explore alternative financing options
If a bridge loan does not fit your needs, discuss other interim financing options with lenders that may support a buy-before-sell scenario.
For example, you may qualify for an interest-only mortgage on your current home for a portion of the overlap period when you own both properties. This keeps payments lower in the short term.
Tapping into available equity in your current home through a HELOC could also provide funds for the new home purchase and the carrying costs of both properties during the transition.
You may also consider temporarily carrying two traditional mortgages or obtaining a short-term second mortgage on the new home in conjunction with your current mortgage.
Each interim financing arrangement has pros and cons to weigh carefully based on your situation. An experienced lender can walk you through various alternatives to determine the most strategic approach.
The goal is creative financing that enables buying before selling while not overextending your budget.
How much can you realistically afford?
When determining the loan amount you can qualify for, be completely transparent with lenders about your intent to buy before selling so they can accurately assess your total debt obligations.
Provide a full picture of your income, assets, credit profile, as well as the values, taxes, insurance and maintenance costs of both properties.
Your lender will analyze your financial circumstances to pre-approve you for a total loan amount that realistically covers both mortgages and related housing expenses during the transition.
This pre-approval amount will represent the maximum home price you can afford to spend on the new property.
Stick to your pre-approval parameters
As you look to purchase your next home before selling your current one, use financial discipline about not exceeding the clear budgetary parameters set by your pre-approval amount.
Factor in mortgage payments, property taxes, insurance, HOA fees, maintenance and utilities on both properties, making certain all of these costs fit within your maximum monthly housing expenditures.
Work closely with your real estate agent to only consider homes well within the pre-approval limit. While stretching beyond your approved budget may be tempting, remaining within the lender’s qualified parameters will prevent you from becoming overextended.
Align closing dates carefully
Coordinate closely with your lender, real estate agent, and title company to align the closing dates on the sale of your current home and the purchase of your new home as tightly as possible.
This minimizes any gap period where you must cover both mortgage payments simultaneously. Even a gap of 30 days can create significant financial strain.
Make every effort to schedule both closings within a week or two of each other. This takes considerable planning and communication, but neatly aligning closing dates makes buying before selling much more feasible.
Make your dream home a reality
It may seem complex to buy and sell a house at the same time.And, it can be! But, with the right strategy and an experienced lender by your side, it’s entirely achievable.
Every homebuying journey is unique: What works for one person may not work for another. At Compass Mortgage, we work with you side-by-side to find the best option for your situation.
Let our team of loan professionals at Compass Mortgage help you on the path to your new home.
We offer a simplified loan process with a personal touch and have the experience to help transition you from one home to another.
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