May 21, 2018

Do I Have To Sell My Home Prior To Purchasing My Next?

Christopher Ulrich

Vice President, Mortgage Lending

It’s time to move on. You’ve outgrown your home and you are thinking of moving up to a bigger and better home. The question that you are most likely thinking is – “Can I buy that home before selling my current home?”. The answer is both yes and maybe.

First off, let’s look at the advantages and disadvantages of selling before you buy.

Advantages of Selling before Buying:

  • You won’t have to qualify for two mortgages at the same time. If you chose to buy and then sell, you could be stuck making mortgage payments on two homes, and depending on how long it takes for your current home to sell, this can become a financial strain.
  • You will have more cash to put down on the new home – assuming you have built some equity in your current home.
  • Since you would know exactly how much you netted from the current home, it will be easier for you to settle on a price range for the new home.

Disadvantages of Selling before Buying:

  • If you are in a seller’s market (demand is greater than home inventory), you may not be able to find your new home quickly. Even if you do find the perfect home, you may be in a competing offer situation, ultimately losing the home you wanted to buy; thus starting the home search process all over.
  • You could be left with no home to live in and forced to move to a short-term rental or even better, you may have to move in with the in-laws. This can certainly be an inconvenience and/or annoyance.
  • In an appreciating market, home prices can move up pretty quickly and throw your budget out of balance.

You know the disadvantages but still would like to purchase without having your home sold. So, can you actually buy a home before selling your current home? If you are like most homeowners who would rather buy before selling, there is hope.

Challenge #1 – Qualifying for 2 mortgages at the same time

Since your home hasn’t sold and there is never a guarantee that it ever will sell, you are required to qualify with two home mortgages. There are 2 possible solutions for this:

  • Solution 1:  If you plan to rent your current home after buying a new home, we can use 75% of the future rental income of your current home to offset your housing payment. You will need to have a rental lease in place and have collected your first month’s rent/security deposit to prove you have a legitimate renter. This may give you enough income to qualify with both homes.
  • Solution 2:  If you plan to sell your current home after you contracted on the purchase, be ready to list your home immediately after your purchase offer gets accepted. In a perfect world, you find a buyer for your home and contract the closing the same day as your purchase. You sell in the morning and close on the purchase in the afternoon. This may sound ideal, but of course it isn’t always feasible, especially if one of the closings is delayed for unforeseen circumstances and you’re stuck in a last-minute scramble. If your home sale happens after the close of your purchase, we don’t have to hit the mortgage debt of your existing home against you if the buyers of your home contracted non-contingent upon any home sale, or if the buyers of your home have a lender’s clear-to-close mortgage commitment to purchase your home.

Challenge #2 – Qualifying with less than 20% Down Payment

Since you haven’t yet sold your current home, all the equity is tied up in the house. Therefore, you may not have the down payment funds you anticipated you’d have.

  • Solution 1:  At United Home Loans, we offer loan programs with as little as 3% down on conforming loans (loan amounts less than $453,101). For jumbo loans (Loan amounts greater than $453,100) we offer programs with as little as 5% down on loan amounts up to $650,000, and just 10% down payment for loan amounts up to $1 million. So, you can get in the new home with a low down-payment, even at those high price points!Yes, you have to pay PMI (Private Mortgage Insurance) if you can’t come up with 20% down, but once your home sells, you can pay down your loan to cancel the PMI. Most lenders even allow you to recast your loan. This means it can be re-amortized over the new loan amount after you’ve paid down the balance by making a one-time large principal reduction.
  • Solution 2:  You can get a gift for your down payment. Gifts from family are allowed on conventional and FHA loans for 100% of your down payment!

As you can see, there are options for you. Figuring out what’s best for you is just half the battle while qualifying is the other half. Let me help you determine the best structure based on your current and future goals of homeownership. From there we will pre-approve you based on both what is in your best interests and what you can actually qualify for. Contact me at 708-531-8324 or here.

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