Many homeowners are hesitant to list their home because…where on earth will they go once they do? Proud claims about double digit showings, multiple offers, and outrageous bidding wars sound great…until you realize that’s the competition you are up against when it’s your turn to buy! Many sit on the sidelines - unmoved by sales pitches and rightly concerned about the next step for their family. But what if I told you that there are ways to navigate a transition successfully even in the toughest market? And, no, it doesn’t include your family finding themselves homeless. Don’t believe me? Allow me five minutes to present my case in the first of this two-part series. You just may find yourself convinced beyond a reasonable doubt. The easiest way to navigate the challenge is to avail yourself of a variety of investment vehicles, loans, or other solutions to get the cash needed up front to purchase a new home without selling your current one. Once you lock in your new home purchase, listing in a seller’s market may be a breeze you actually enjoy. Here are 5 ways to do it: 1. Savings: If a homeowner has cash stored away for rainy days, this is the most obvious source of funds to put down 5% on the next home and cover closing costs. While some mistakenly think 20% down provides borrowers with more favorable terms, often interest rates are better with less down since lenders tack on mortgage insurance to hedge against foreclosure risks for low down payment loans. With a lower interest rate as well as the ability to recast your loan and bring your monthly payment to a reasonable amount once you sell, buyers may find themselves in stronger financial standing once it’s all said and done! 2. 401K’s or Roths: Various investment vehicles allow you to withdraw cash with little to no fees for home purchases. Since the long-term goal may be to replenish the accounts with home sale proceeds, these investment vehicles provide an immediate solution for getting cash that doesn’t hurt your long-term investment prospects. 3. Bridge Loans: A bridge loan allows you to access the equity in your current home before you sell it. Think of it almost like a home equity line of credit - but a little different. This solution allows homeowners to write offers that are not contingent on the sale of their home and do not require dipping into savings or other investment vehicles. Alicia O’Brien, seasoned loan officer with Prosperity Mortgage, explains, “Our bridge loan is designed to help buyers unlock the potential of their departure residence's equity for a down payment on their new home. This short-term, interest-only solution avoids pending sales contingencies that otherwise kick buyers out of the running”. Qualified borrowers access the equity in their home now for the needed down payment and closing costs for the next. Once the current residence is sold in a few months, the bridge loan is paid off in full. Bridge loan payments can be interest only - keeping debt-to-income ratios protected - and carry minimal closing costs with competitive rates. 4. Home Equity Line of Credit (HELOC): HELOCs may also provide a needed solution. Before listing your home, accessing a line of credit on the equity of your home allows you to pull cash out for future expenses. Of course, a borrower’s equity in their home needs to be significantly greater than 20% to make this solution work. HELOC allowances can be limited, and these loan products may carry added costs for closing the line of credit early. However, in the right situations, these products can be a good stepping stone to the next home. 5. Gift Monies: Family members may offer a hand in some instances. Different to the underwriting requirements for co-signers, underwriting guidelines for gift funds are much simpler and allow borrowers to accept cash needed to get into the next home. Remember, it only takes 5% down to purchase. Once you secure your next home, listing your residence with a quick close can give you access to your remaining equity before your first mortgage payment is even due. Replenishing investment accounts, savings, or paying off loans follows as well as recasting your remaining loan to make the monthly payments more in line with your budgeted projections. However, these solutions may not be a practical one for homeowners that are highly leveraged due to student loans, car loans, credit card debt or for those with high loan balances on their current residence. For these homeowners, take a quick recess and let me present my next case in Part 2 of this series! Never want to miss a post? For more useful real estate tips & tricks, subscribe to our mailing list or contact us with any real estate questions.
Authored by: Kat Medaries, REALTOR® MT Realty Advisors of Long & Foster Real Estate Village of Midlothian Sales, 1100 Jefferson Green Circle, Midlothian, VA 23113 Licensed to sell in the Commonwealth of VA | Equal Housing Opportunity For informational purposes only. Not intended as legal, financial or credit counseling advice. Seek the assistance of a professional should you require.
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