BUYING A HOME BEFORE SELLING YOUR HOME
Buying a home is always something one has to take a minute and decide how to approach, but buying a home when you already own a home can present a different dilemma. Nearly everyone needs clarification about whether they need to sell first or not. In some cases folks simply do not consider it an option to buy before selling even if they CAN.
First of all know if you can buy before selling. Then it is easy enough to determine if you WANT to buy before selling. The bottom line is whether you qualify for all the debt you currently have including your current home AND a new home mortgage. So debt ratio is a first consideration.
If you qualify for all the debt how long will you intend to have both homes? In today's market homes are selling really fast. I remember when it used to take months to sell a home in our market. Now if you have a decent home and you price it right it will sell fairly quickly, so quick that you may not double up on house payments ever. But planning on how long you may want to double up on both payments is key. When a lender looks at the home mortgage for the new home and if they approve you to have both mortgages their determination is that you CAN do both. It is your determination that counts about if you WANT to do both and for how long.
Debt ratio is one consideration. Another is down payment. Many folks sell their current home and take the cash from that sale for down payment. If you find a home you want and have yours pending right away you can close back to back on the same day. But if you need to buy before selling you will need to come up with a down payment. Each situation is different. You may have money in savings for down payment. You may have an investment where you can get a down payment. You may pull money out of your current home on an equity line for a down payment. An equity line that would be paid off when you sell. Keep in mind this situation adds another loan you must qualify for in the allowable debt ratio.
Sometimes folks have a smaller down payment readily accessible in savings and can purchase a different home with a small down payment and after their home sells send a lump sum to the lender to reduce the monthly payment by asking them to recast the loan. Recasting adjusts the monthly payment lower over the remaining period of the loan. This makes the monthly payment more affordable and shortens the time when PMI can be dropped.
There is no one single answer to the down payment situation. Not everyone has a 401K, not everyone would borrow form a 401K, not everyone has a lot of equity in a current home. One thing for certain if you own a home and are thinking about moving, the question of buying before selling has to be addressed before you start shopping. Consider all your options and choose what works for YOU! We do a lot of back to back closings on the same day these days. It's the market we are in here in the KY and OH market; it won't last forever, enjoy it while you can.