Have you ever wondered if buying your next home before selling your current one is the right move for you? This strategy has become increasingly popular, but it requires careful planning, especially when it comes to financing. Today, we’re diving deep into the options available, featuring insights from Stephanie Levine of Neo Home Loans, an expert in creative financing solutions.
Why Buy Before You Sell?
There are several reasons homeowners choose to buy before they sell:
1. Finding the Perfect Home: Timing is everything in real estate, and securing the ideal property without worrying about immediate sales pressures is a huge benefit.
2. Avoiding Inconveniences: Selling a home while living in it can be challenging—especially with kids, pets, or ongoing renovations. Keeping your space show-ready for buyers can be exhausting.
3. Relocation Needs: Sometimes, life throws curveballs—job relocations, family changes, or other life events might make moving quickly a necessity.
For all these scenarios, financing plays a crucial role, and Stephanie shared several creative solutions to make buying before selling possible.
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Financing Options for Buying First
Stephanie walked us through key strategies tailored to different financial situations. Let’s explore the highlights:
1. HELOC (Home Equity Line of Credit)
– What It Is: A HELOC allows you to borrow against the equity in your current home to fund the down payment for your next one.
– Pros: Interest-only payments make this a cost-effective option for many homeowners. Once your current home sells, you can pay off the HELOC.
– Cons: Opening a HELOC can take 30–45 days, so planning ahead is essential. Stephanie recommends opening one if you have over 20% equity in your home, even if you’re not currently planning to use it—it’s a helpful safety net.
2. Guaranteed Backup Contract
– What It Is: A buyer writes a contract on your current home, which allows the lender to remove your existing mortgage payment from your debt-to-income ratio.
– Cost: $2,500 flat fee.
– Who It’s For: Homeowners with sufficient liquid assets for a down payment but who need to reduce their debt-to-income ratio to qualify for a second mortgage.
3. Sell-Side Financing
– What It Is: Access equity in your current home while controlling its sale. This strategy combines guaranteed backup offers and bridge loan features, providing up to 100 days to sell your home.
– Cost: 2.4% flat fee of the sales price of your current home.
– Pros: Gives you the flexibility to buy your next home while selling at your own pace.
4. Buy-Side Financing
– What It Is: A lender purchases your next home with cash on your behalf, making your offer more competitive. You then have 90 days to sell your current home and finalize your new mortgage.
– Cost: 1–2% of the new home’s purchase price.
– Ideal For: Buyers who want a smooth transition without the pressure of managing two mortgages at once.
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What If You Want to Keep Your Current Home as a Rental?
Stephanie also shared insights for those considering renting out their current home instead of selling:
– HELOC vs. HE Loan: Both allow you to access equity, but a HE Loan offers a fixed interest rate and payment schedule, making it a stable choice.
– Lease Income: If you sign a lease on your departing residence, a portion of the rental income can offset your existing mortgage, making it easier to qualify for a new loan.
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Plan Ahead and Stay Flexible
Every homeowner’s situation is unique, and there’s no one-size-fits-all solution. Stephanie emphasized the importance of analyzing your finances and creating a tailored plan. Whether you need cash for a down payment, help with debt-to-income ratios, or simply want a stress-free transition, there’s a financing strategy to suit your needs.
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Ready to Explore Your Options?
Buying before you sell can provide peace of mind and help you secure the perfect home without compromise. If this sounds like the right move for you, let’s set up a time to discuss your options. We’ll work together to find the best strategy for your unique situation.
Reach out today—your dream home could be closer than you think!
Join Angela and Shey on this week’s Market Update video to see the full breakdown from Stephanie!