Buy First, Sell Later

Buying a new home after your current home has gone under contract and you only have 4 days to find a new home is stressful. One way to make buying the new home process easier is to buy first and sell later. Meaning buy your new home, move into it at your leisure, then once your old home is empty list and sell.

To make this type of financing happen there are 2 major considerations to work out:

– Down Payment
– Qualifying for both mortgage payments

Most people feel they are forced to sell their current property prior to buying, because they need the down payment from the sale of their house or they don’t feel that they will qualify for both payments. But here are a few tricks that may make a Buy First Sell Later home buying strategy work for you.

If we will be buying first we will not have the sales proceeds from the house we are selling to use for the down payment. We will need to use funds from savings, if you are lucky enough to have the funds.

If someone has a large savings account they can put down a large down payment then replenish their savings once their existing home has sold. Once the existing house sells we will have more funds available and can do a Re-Amortization.

A Re-Amortization is available on conventional loans, and costs a few hundred dollars. This process is done when you make a large principle payment and lets you lower your monthly payment based on the remaining principal and time left on the loan. For Example, if you bought a house with a small down payment then sold your existing house and netted $100,000 in sales proceeds. We could pay down the principal balance of your new house $100,000. Re-Amortize the loan and lower your payment based on the new loan amount.

More frequently, we turn our clients on to a HELOC (Home Equity Line of Credit) for the down payment. A HELOC is a line of credit tied to the equity in your existing property and provides a flexible way to finance a new primary residence, vacation home or investment property.

Utilize your equity and make a large down payment and avoid Mortgage Insurance. What I don’t like about the HELOC is that while you have drawn against it until you sell your home and payoff the HELOC you will have to pay interest against it. You will be paying interest on the HELOC for such a short period of time it really isn’t that big of a deal.

Qualifying for both payments can be tough.  If you qualify for both payments right away, it’s smooth sailing. If not, you can convert your existing home to a rental property and use 75 percent of the rental income to offset the existing payment. This works great when you want to acquire rental properties.