You CAN Buy Your New Home Before You Sell Your Old One
Buy Before You Sell. Too Risky Right? Wrong!
Common Home Owner Myth: I cant buy a new house without first selling my old one.
That is the way it is supposed workright? You cant have a new house without getting rid of the old one.
Take for example, the story of one of our clients. They had a house (beautiful house, worth about $600,000) and had no intention of leaving.
However, one day this house in their neighborhood went on the market. You know the house. It is the one where every time you go by, you wish it was yours. Unfortunately, this house would never be for sale.
Out of the blue, the unbelievable happens: the house goes up for sale.
Now most would call this a stroke of luck, then it would dawn on them…
We cant have that house. Obviously, something unforeseen as happened, and theyll want a quick sale. Waiting for us to sell our house first, wont be acceptable to them. I guess we are out of luck.
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Luckily, this client called us to structure a safe way for him to get his dream home today, buy some time to get his old house sold, make both homes affordable during the marketing period, and leave him the exact same long term financing on the new home he otherwise would have had.
Now thats a tall order! But we did it. And, so can you!
Here are 2 ways to buy a new house without selling your old one first.
Pull the equity out of your existing house using a Home Equity Line of Credit or a 2nd mortgage. If you could snap your fingers and sell your home, this would be what youd use to buy the new home anyway. So just get it out now. Now, reserve enough of this money to make your old house payment for 6-12 months. Your house will take this long to market and with the money set aside you wont be tempted to take a low-ball offer. Use the remainder as down payment and get your new first mortgage to complete the purchase. When the old house sells, both mortgages are liquidated and you are left with one house and one mortgagethe exact same situation youd have had if you sold your old home before you bought the new one. But you accomplished it without the wait and the missed opportunity!
Another way to achieve the same result minus the old house payment reserve is to use an 80% first mortgage and a 20% 2nd mortgage also called 100% financing, to buy the new house. You wont have to put any money down and when your old house sells, you use the proceeds to pay off the 2nd. The only difference is you dont get any extra money to use to offset two house payments during the marketing period. Many of you, have existing lines of credit or other sources, so this may not be necessary.
Both scenarios leave you with great permanent financing on the new house.
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The 80/20 or 100% financing scenario costs a little more in discount points than a traditional structure, but its only to the costs and not the rate. Refer to our website to learn more about 100% financing in our free report called, Buy With Zero Down!.
The biggest hurdles youll need to clear are 1) making two housing payments and 2) getting loan approval with two housing payments.
Heres how you do both:
When you pull the money from your existing house, reserve enough to cover up to 12 months mortgage payments for the old house while it is on the market. That way you dont have to come out of pocket for the payment. Gee, that was easy! Hurdle 1 cleared!
Since most loans are approved through a computer these days, youll need a mortgage broker who knows how to use the automated approval computer systems that FNMA and other agencies and lenders use. These approval systems are a Godsend when it comes to creative financing in todays modern mortgage arena. It may seem strange to you, but to the computer, your financial picture and your need for financing, are simply numbers. It doesnt care that some of those numbers include 2 housing payments. The new systems are allowing many of our clients an approval with abnormally high debt ratios, sometimes as high as 60%! This is very prevalent, especially with clients who have strong credit and assets after closinglike a 401K. This is your window for approval. Now, you know youll not be spending 60% of your income on debt, because you put the money aside in Step 1 to cover the old house payment, but the computer doesnt know that or care. If done right, youll get the approval even with very high debt ratios.
Note: Beware! Dont let an unscrupulous mortgage broker get you to commit mortgage fraud just so you can buy before you sell. Stick with our plan. If you get approved fine. If you dont, live with it. One way theyd break the rules to get you approved is to doctor up a lease agreement on your old home to offset the payment and show the computer a lower debt ratio. Dont do itits a Federal crime!
How do you start?
1) Get approved through the computer system
2) If you need to pull equity out of existing house; start it now
3) Write offer on new house
4) When offer is accepted, put existing house up for sale; not before
At Integrity First Mortgage, we use these strategies to get our clients into houses every day. So dont worry. It is ok to step out of the box sometimes and put away some of the outdated concepts about financing a house.
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Lastly, dont forget you can net a lot more for your old home with our revolutionary way to sell your house without paying a real estate commission, (6% commission on a 600,000 house is $36,000!). Look below in my resource box for more information.
Happy House Hunting!