Real estate markets are very competitive. If you’re planning to buy a house while selling your own and get the money from the sale of your property to make a down payment, then you may find it hard to overcome it.
If you know the worth of your home and are confident that your home will sell very quickly, then prefer to buy a new home before selling the old one. But it’s a huge challenge to arrange required cash for the down payment. Here are six options for buyers looking to buy a new home before selling the old house.
Using home equity on your home or the new house for the down payment
A home equity line of credit or a home equity loan is the only best way for the buyers to balance their current home’s equity before selling the house. A home equity loan can be used for any purpose, like a mortgage, this will have an interest rate, monthly repayments, and one-time equity draw. In this loan, you can access either a part of your equity or all during the draw period.
In the last few years, the ratio of the number of lenders who offer buyers a home equity line of credit has gradually increased. Buyers can apply for a regular mortgage and a home equity loan at the same time.
Set the budget and calculate your down payment
You should know your financial situation before planning to buy a home. Discuss with your financial advisor. Fix a budget for a new home and check whether it will be easy for you to pay your monthly debts once your existing home has sold. Check your liquid assets to determine how much cash you have for the down payment. Most lenders will require a 20% down payment on these loans.
Do your home research
After fixing the budget for your new home, surf the web and find what you can buy for the amount. It’s a good option for the buyers to go to multiple open houses so that they may know what they can buy. If a choice of your house exceeds the amount you’ve fixed then don’t ignore it.
Meet with real estate agents
A right real estate agent will clearly show a picture of the market value of your home. If you’re planning to buy and sell then use the same agent throughout the process. Ask them to tell how quickly your property would sell and know if any repairs are needed.
401(k) or other investment account loan
Ask your financial advisor whether you’re eligible to get a 401(k) loan, if yes then check the repayment period, interest rate, and other terms relevant to personal residence loans. The amount you get will depend on the plan.
If you’re confident to repay the debts using proceeds from the sale of your existing home then 401(k) is a good option.
The lenders don’t consider this loan as debt when calculating your debt-to-income ratio for a mortgage pre approval.
Get your team together
Calculate both your debt and income information and show it off to the lender to get the best rate. Ensure that you can make the down payment, cover closing costs, and carry both homes for a time. If everything is done then ask your team to assist with the purchase and sale of your homes.Choose a real estate agent who helps you to get a pre-qualification letter.