If you’re looking to sell, the good news is home sales were up by 5.9%. Are you wondering whether to buy now or wait? This article will cover everything you need to know about buying a house before selling.
Read on to discover these facts so you’re aware of your options and what occurs.
Is Buying a House Before Selling Your Current Home Cost-Effective?
If homes sell quickly in your area and you can afford a second mortgage payment it can be cost-effective to buy a house before selling your current home. Take a look at the current forecast in your area before buying a new home.
Qualifying for a Second Mortgage
Before purchasing a new home, you’ll want to make sure you qualify for 2 mortgages at once. When you apply for a mortgage, the lender will take a look at your debt-to-income ratio. Your debt-to-income ratio is how much you make compared to your total debt obligations each month.
Your mortgage payment for your current home will be factored in which can make it hard to qualify for a second home.
Coming up with a Down Payment
If you decide on buying a house before selling, the first risky thing you have to worry about is coming up with a down payment when buying your new home. It’s extremely risky because what if you buy your current home but are having trouble selling your old home?
You’ll also have to worry about paying the mortgage for both properties which can be hurt more by saving for a down payment.
Loan From 401K
One way you can come up with the down payment is to take a loan from your 401K. You’ll want to find out from the plan administrator whether taking out a loan for this purpose is allowed. Next, you’ll want to see the interest rate, repayment period, and terms that go along with that.
The IRS does restrict how much you can take out, so always find out how much you can borrow before moving forward with buying a new home.
Use Loan Equity
A home equity loan is another way to come up with the money for the down payment. This is where you take from your current home’s equity to put toward your new home.
This will usually have a fixed interest rate and you can access all or part of your equity line during the draw period.
80/10/10 Piggyback Method
The 80/10/10 piggyback method is available to homebuyers from banks. When you put less than 20% down toward a down payment, this can lead to a higher monthly payment because of a higher interest rate.
Putting less than 20% down you’ll have to pay PMI(private mortgage insurance) as well. To avoid paying PMI and higher interest rates, you can take out the 80/10/10 piggyback method.
Your primary loan is 80% loan-to-value-ratio, with 20% down and is a fixed-rate loan. The 20% is put into 2 halves, the first 10% is paid by you in cash, and the other 10% with a loan.
When you’re waiting for your current home to sell you’ll have your current mortgage payment, interest on your line of credit, plus the mortgage on your new home.
Reasons to Buy Before Sell
There are reasons to buy a home first before selling, such as being a seller’s market and a multitude of reasons. While it can be expensive having to worry about 2 mortgages, sometimes it makes sense to move forward with this process.
If you live in a seller’s market and can sell your home fast it would make sense to buy a home before selling. Very few sellers accept a contingent offer saying that you must sell your current home before closing on the new property.
Your Dream Home
Sometimes when you go to view a home you just fall in love and it’s everything you’ve dreamed of. When you find a home that you don’t want to miss out on it makes sense to buy before selling.
A home could come up in the market and it’s too good to miss out on. When it comes to a great deal, you might want to put an offer on the home before it’s gone.
Avoid Moving Multiple Times
When you sell your first property, you’ll need to worry about having to pay for an apartment or other space. You’ll have to move all of your items from the home you sold into a temporary location, even possibly including a storage unit. Then, once the home you bought is ready to move in, then you have to move again.
It’s understandable if you want to avoid this by wanting to buy a home before selling.
Avoid Owning Two Properties
If you decide you’d prefer to have one mortgage at a time, it’s not necessary to find a home before selling your current one. You can sell your current home fast and then look for a new property.
The downsides of this are you’d have to rent a storage unit and stay somewhere else temporarily until you find a new home. You can take your time finding a new home though and not rush in trying to sell it before selling your current home.
What to Know Before Buying a Second Home
When you’re buying a house before selling you do have options although it can be trickier and more costly. To avoid the hassle of buying before selling, contact us today and we can help you sell your house fast.