Aligning the Stars for Your New Home Purchase

Right now it’s a seller’s real estate market, which means that there are fewer properties available to interested buyers. And if you happen upon a home that you really want to buy (or circumstances dictate that you need to buy a new home when moving for a job), you could be in a position   to make an offer quickly in order to have a chance at landing the home you want before another buyer gets to it. This situation could prove problematic if you don’t have your financing ready to go. 

Conventional wisdom would suggest that it’s easier and more financially desirable to sell the home you are living in before you buy a new home, thus saving you from carrying two mortgages. But sometimes the stars don’t align in the most desirable manner. And if you encounter a scenario like that described above, you may not be in a position to get your current house on the market and make a sale before you need to seize the opportunity to buy a new property. What to do?

The best move you can make is to contact a loan officer immediately to see what your options are in terms of financing a new home under these circumstances. Your loan officer will be able to make an assessment of your financial picture and guide you through your options.

• One possibility that your loan officer might suggest is to place a “contingency offer” on the home you wish to buy. Quite simply, this means that the sale will only close contingent upon the condition that you sell your current home first. This can buy you some time to find a buyer for your home – and fortunately, in a seller’s market, you are more likely to find that buyer quickly than when inventory is high and you are facing a lot of competition from other properties on the market.

• Another option you might consider is to rent out your current home so that you have income to support your existing mortgage payment. There are both pros and cons to renting. While taking on tenants and rental income may solve a short-term problem, if you are still in the process of trying to sell the property, having tenants in the mix could cause complications in terms of honoring a lease, booking showings, and others  . Be aware,   there are some restrictions on converting a primary home to investment and using the income for qualifying for a new loan. Talk to your loan officer about the details on this type scenario.

• Depending on the amount of equity you have in your current home, your loan officer might suggest a bridge loan, which is a type of transitional financing designed to help you manage your financial obligations until you can sell your first home and offload one of your mortgage payments. Bridge loans carry a higher interest rate than conventional loans, as they are riskier for both the lender and the borrower, neither of whom can foresee how quickly a home might sell.

Bridge loans are sometimes referred to as “swing loans” or “gap financing.” When qualifying for this type of financing, the borrower must qualify not only for the bridge loan, but also for the mortgage loans on both the current property and the property on which he or she is making an offer.

There are different types of bridge loans, the nuances of which your loans officer can explain in greater detail. Some bridge loans pay off the first mortgage, with the remaining cash dedicated to a down payment on the new property. Others simply provide a down payment for the second home with the expectation that the borrower pay both mortgages until the first home sells. Your loan officer can help you determine whether you qualify for a bridge loan, and what type might be available to you.

As with any home purchase, if you are thinking about buying a new home before selling your existing home, you’re going to need stellar credit and be in good financial standing in order to qualify for financing and to secure a favorable interest rate. Therefore, if you have even a vague intention of buying a new home in the near future, the sooner you talk to an experienced loan officer, the better. He or she can help you weigh your options and align the variables for a smooth home sale and purchase.