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Want to buy a house before selling your current house? Buying a house before selling is rarely simple, but a West Chester, PA real estate agent can help you out.
If you want a new home but still have yours to sell, an experienced real estate agent like Mike Ciunci can review your personal options.
For those in the beginning stages of planning, let’s look at three general options to buy before you sell.
1. Find Out If You Qualify for a Second Mortgage
You can take out a second mortgage based on the equity that you’ve built up in your current home.
When you get a second mortgage, your initial one stays in place until you sell your house. After your first home sells, you can pay off this mortgage. And if you bought a new home for less than what your first one sold for, you can use the money from your sale towards your second mortgage.
Before you get a second mortgage, there are a few things you should keep in mind. First and foremost, there are two types of second mortgages.
Home Equity Line of Credit (HELOC)
A HELOC works like a credit card. A lender gives you a line of credit based on your home equity, which you can use to buy a second house.
Home Equity Loan
A home equity loan is similar to a traditional mortgage. With this loan, a lender gives you a percentage of the home’s equity in a lump sum, so you can purchase a second house. You then repay your loan based on your lender’s terms, which typically consist of biweekly or monthly payments made over the course of five to 30 years.
Along with this, lender requirements for second mortgages vary, so it pays to shop around.
To qualify for a second mortgage, you may need to meet the following requirements:
- At least 20% equity available in your current home
- A credit score of 600 or better
- A debt-to-income ratio of 43% or less
You’ll need to provide your current mortgage information, W2s, and other financial documents when you complete your application for a second mortgage. Once you submit all of your application materials, it takes an average of 45 to 60 days to get approved.
Lastly, make your second mortgage payments on time — if you don’t, you risk a foreclosure.
2. Request a Bridge Loan
You can use a bridge loan to pay off the mortgage on your current house or make a down payment on a new home. This helps with buying a house before selling, since you’ll be able to use your loan to get into your new residence faster than you could if you tried on your own.
Bridge loans are short-term financing options. Generally, you’ll have to pay back a bridge loan within six to 12 months.
Lenders will determine your eligibility for a bridge loan based on your credit score, the real estate market’s conditions, and other factors.
Bridge loan interest rates and fees depend on the lender. In many instances, these rates and fees are higher than those associated with other types of loans.
When you get a bridge loan, you’ll use your home as collateral. If for any reason you can’t make your loan payments, your lender can foreclose on your house.
3. Add a Contingency to Your Purchase Agreement
You may be able to negotiate a home sale contingency clause into your purchase agreement.
With this clause in place, a seller agrees to let you buy their home, with the stipulation that you will purchase their residence contingent on the sale of your house. At the same time, the clause gives the seller the flexibility to accept other offers.
If another buyer reaches an agreement with a seller on the home you want to buy on contingency, the seller will notify you. At this point, you’ll have a certain amount of time (likely 24 to 48 hours) to remove the contingency. If you can’t, the seller has the option to terminate their agreement with you and accept the other offer.
A home sale contingency is a great option if you don’t qualify for a second mortgage or don’t want to get one.
Also, a contingency helps you seamlessly transition from one home to the next, since you already have a new house to move into after your current one sells.
On the other hand, you’ll still have to pay for home inspection, bank, and appraisal fees for the home you want to buy — and these expenses won’t be refunded if your deal falls apart.
The Bottom Line on How to Buy a House Before You Sell Yours
If you want a new home but still have yours to sell, you have options.
West Chester real estate agent Mike Ciunci understands the challenges that come with buying before you sell. He will explain your options for buying a home before you sell one — and much more.
Contact Mike Ciunci for help buying or selling a home in the West Chester area.