It's time to buy your next house....downsize, relocate to another county or state, or just buy a bigger home & property that meets your needs. Whatever your reason for buying a better house the first step is creating a plan on how to finance your next house. I can't tell you how many times my clients have chatted with their loan officer expecting to hear a resounding NO when they inquired about whether or not they could qualify to buy their next home WITHOUT selling their current home (aka qualify for two mortgages) and they were always floored when instead they got a YES! You've worked hard on your financial health let's celebrate...WAHOO! Now how do you buy your next home when you do not have a down payment, but you can qualify for two homes.
Build a Bridge
What is a bridge loan? A bridge loan is when you borrow against the equity of your current home. So you basically like take a second loan out, use that equity and buy your next home with the bridge loan. Then when you sell your current home, you pay off the bridge loan and do a mortgage for the second home. Not real popular right now, but doable. The interest rates are a little bit more and there are not very many lenders available that do bridge loans but they are an option.
Home Equity Line of Credit
If you have equity in your current home another option is to get a Home Equity Line Of Credit / aka a HELOC. You can withdraw that equity before you sell the property so you can put it down on your next home. Almost all banks and many of the mortgage companies that we work with, we'll do a home equity line of credit. They'll take you up to 80% loan to value. So for example, if you have a home that's worth 500,000, they will let you take out a loan up to 400,000. So if you owe 300,000 on the house, they'll let you go up to that 400,000, 80% loan to value and take the $100,000 difference to put down on your new home. Once you have purchased your next home you will pay off your primary mortgage that you had AND the home equity line of credit.
Buy with gift funds. This is exactly how it sounds. You get a gift from friends, family, and you use that to put as a down payment until you sell your current home. Once you sell your home you can either pay more down on your new home and recast the loan. (like a streamlined refi, ask your lender) Or you can pay down other debts to make monthly payments more manageable.
Bonus - 401K
One of the other things that I like to throw in here with gift funds is did you know that you can borrow against your 401k and use your 401k for a down payment? You can do that too. As long as you put the funds back. Now different employers and different investment institutions have different rules. So make sure that you check that out. There are some tax implications there. So you certainly need to make sure that you're protecting yourself tax wise, but that is also an option as well.
So even if you don' have a down payment, if you can qualify for two mortgages I have reviewed 16 (17 if you count the 401K bonus) ways that you can buy your next house. Write down a few of the options that you're interested in, and you're ready to have a educated conversation with your lender. It should be a 10, 15 minute phone call, especially if you're prepared. If you have a strong plan in place, they're going to know exactly how to set things up so that it is the most convenient for you and the most financially responsible plan of action. If you would like a consultation give us a call at 425-359-0181 Homematch NW.