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Buying a new home before selling your existing one can save you the hassle of moving twice. To achieve this, you need cash and the ability to qualify for a new mortgage while still carrying your current loan. The primary challenge for most buyers is securing enough money for the down payment.
In hot markets, sellers benefit from multiple offers and quick-moving inventory, which can be problematic for buyers, especially those with tight timetables. If you're confident your home will sell quickly, buying your new home before selling the old one can be a viable option. Here are seven strategies to help you buy a new home before selling your current one.
7 Ways to Secure a Down Payment When Buying a New Home Before Selling Your Current One
1. Using Equity from Your Current Home or the New Home
A home equity line of credit (HELOC) or home equity loan allows you to tap into your current home's equity before selling it. Alternatively, some lenders offer a HELOC on the new home you're buying. This way, you can secure a mortgage and a HELOC simultaneously, using the proceeds from the sale of your old home to pay off the HELOC on your new house.
2. Taking a Loan from Your 401(k)
Check with your plan administrator or HR department to see if 401(k) loans are permitted under your plan. The maximum amount you can borrow is typically $50,000 or 50% of your vested account balance, whichever is less. This loan will be repaid with after-tax dollars through payroll deductions.
Ready to find your dream home in Colorado?
Let us help you. Call or Text Kenna Real Estate Group at 303-955-4220 to get personalized assistance from our expert real estate agents. Find out what your home is worth in today's market.
3. Cash-Out Refinance
A cash-out refinance allows you to refinance your existing mortgage and take out a portion of your equity as cash. This new, larger mortgage can provide the necessary funds for your down payment. Remember that closing costs can be significant, so it's essential to understand the terms fully.
4. Getting a Gift
Some lenders accept a gift from a family member as part of the down payment. The donor must complete a gift letter and provide financial information. Note that the gift cannot be repaid and may have tax implications for the donor.
5. Putting Down Less Than 20%
A 20% down payment is only sometimes required for buyers under the conforming loan limits. Options like 80/10/10 loans are available, where 80% is financed through a traditional mortgage, 10% through a HELOC, and 10% as a down payment. However, these options often come with higher interest rates and monthly payments
6. Using a Sale-Leaseback Contingency
A sale-leaseback contingency allows you to sell your home and lease it back from the new owner until you find and close your new home. This can provide the cash needed for a down payment without the immediate need to move.
7. Using a Bridge Loan Such as Rate Bridge
The Rate Bridge is a bridge loan from Rate. Rate's Rate Bridge page says it lets you borrow up to 85% of your current home's equity, with no payment due for 4 months and funding the day you close on the new home, so you can write an offer without a home-sale contingency. Approval depends on credit and underwriting; Mike Oswald at Rate can tell you whether your file fits.
Many of our buyers use Mike Oswald at Rate and trust him. You are free to use any lender you choose, and the Kenna Real Estate Group receives nothing for the introduction. Mike Oswald, NMLS 261003 · Rate, Inc., NMLS 2611 · Equal Housing Lender.
Steps to Buying a New Home While Selling Your Old House
Step 1: Set Your Budget and Calculate Your Down Payment
Review your financials with a financial advisor to set a target budget for your new home and determine how much cash you have available for a down payment.
Step 2: Research Homes Within Your Budget
Once you have a budget, research the market to see what homes are available in your price range. Attend open houses to better understand your options.
Ready to find your dream home in Colorado?
Let us help you. Call or Text Kenna Real Estate Group at 303-955-4220 to get personalized assistance from our expert real estate agents. Find out what your home is worth in today's market.
Step 3: Meet with Real Estate Agents
Invite multiple real estate agents to assess your home's value and discuss their sales strategies. Using the same agent for buying and selling can reduce fees or closing credits.
Step 4: Speak with Lenders
Shop for lenders to compare interest rates, fees, and loan products. Discuss your buying plans before selling and ask about their debt-to-income ratio guidelines.
Step 5: Do the Math
Calculate your projected monthly payments and ensure you're comfortable with them. Assess your cash reserves to cover both homes' down payment, closing, and carrying costs.
Step 6: Assemble Your Real Estate Team
Choose a real estate agent and a lender to help purchase and sell your homes. Obtain a pre-qualification letter from your lender to strengthen your offer.
Kenna Real Estate Group at Keller Williams DTC in Colorado guides you through buying and selling your home. Contact us today to start your journey to your new home!
