For some people considering a move, selling their house before they know where they will be living next is very stressful. Many need the funds from the sale of their house in order to get into a new property. While that may be true, there are some strategies that will allow you to buy a new house before you sell your existing home. There are financial considerations to each strategy but they allow a buyer to shop at their own pace instead of being forced to buy something that may not be right but is available right now.
Here are some options:
1) Take out a home equity loan from your existing home and use the funds for a down payment. You will need to have enough income to then qualify for a mortgage on the new home. This only works if you have a low balance on your existing mortgage or have paid off your house. I have clients using this strategy right now. It is allowing them to pounce when the right property comes along and then sell their existing house after they move into the new one. Since they are downsizing, they will then pay off the mortgage on the new property with the proceeds of the sale.
2) Write an offer for a property contingent on the sale of your existing home. This can be a tougher one to get accepted by a seller. They are betting you will be able to sell in a timely fashion. They may want you to pay more for their home for the convenience of them accepting your "contingent on buyer's home sale" offer and they will probably want to see your house is already on the market so they know you are serious. This tends to work better when the property you are buying is in an area that is slow or the property itself is not ideal for a wide variety of buyers. I have client who is selling in Julian and accepted a contingent on sale offer. They buyer came to her terms and things are slow in Julian through March so she was happy to wait for them to sell. We are set to close later this week!
3) Use a bridge loan. A bridge loan is a short-term financing option that provides temporary funds (in this case used as a down payment or even for the purchase price) by borrowing against the equity in the current home. This functions like a HELOC in the sense that you are borrowing against your equity. If you have enough equity, you could actually fund the entire purchase this way. Once your original home sells, you repay the bridge loan using your home sale proceeds. However, bridge loans typically have higher interest rates and fees compared with traditional mortgages. There's also the risk that your current home takes longer than expected to sell, increasing your costs.
4) Guaranteed offer programs are another option although these too have a cost. There are companies that will offer you an upfront price for your home, providing certainty as you plan your move. You’ll know exactly how much money you’ll receive, so you can confidently buy your new home without worrying about market swings or timing headaches. The issue is they will offer you less than you can make on the open market because that is how they make their money. My elderly neighbor did this and ended up leaving more than $100,000+ on the table. When they buyers closed escrow they resold it (without doing anything to the property) for than $100,000 more.
5) Use a reverse mortgage or "Home Equity Conversion Mortgage" (HECM) to buy the new property. This is only available to those 62 and over. A “HECM for Purchase” loan also requires that the home you are purchasing be your principal residence and you will need to have cash available for the down payment. There will also be closing costs, which will be higher than those with other reverse mortgage loans. For HECM for Purchase loans you’ll need cash to pay the difference between the HECM proceeds and the sales price plus any closing costs. I have not done one of these but know a good reverse mortgage lender if you want more information.
If you are thinking about selling but are concerned about your next property purchase let's talk. I can help you navigate your options.
