There are a few circumstances where you can and may prefer to purchase a new home before selling your previous home. If you are in a hot seller’s market where homes are selling quickly, for example. If you are buying new construction, you have extra time to sell your current home while your new home is being built. But what options do you have if you are buying a new home that is move-in ready?
The first thing to do is see if you can qualify to carry both mortgages at the same time. Since you will own two homes at the same time, you will have two mortgage payments due each month. Therefore, your lender will want to make sure you can afford both mortgage payments.
Think about rental income
If you cannot qualify for both mortgages at the same time, you may be able to rent out your current home. You may use the rental income to help you qualify to carry both home mortgages. Before renting your home, be sure to consult your lender. You may be required to provide additional paperwork and financial reserves. Financial reserves include money from savings or investments, like a 401K. Should you be unable to rent out your home, these can be used to make payments on the old home.
Think about down payments
The second thing to do is figure out how much you can afford to put down as a down payment. If you were planning on using the proceeds from the sale of your old home to buy your new home, you are not out of luck. Look for loan options that offer a first and second mortgage combination loan. These may be called piggyback loans. Piggyback loans allow you to put down as little as 5% and then borrow the remaining 95%. You would take out a first mortgage for 80%, and then a second mortgage for 15%. Once your home sells, you can then use the proceeds to pay off the 15% second mortgage.
Buying a new home before selling your old home could come with the added advantage of time. You could have plenty of time to pack and move your belongings, which can make the process of moving much less stressful. It could also allow you time to make needed improvements to your old home so you can sell for top dollar.
The information voiced in this material is for general information and is not intended to provide specific advice or recommendations for any individual.
All loans subject to credit approval.