How Do I Buy A Home If My Current Home Won’t Sell?
Purchasing a new home while selling the home you’re currently in simultaneously can go very smoothly if the right pieces fall into place. But since so many homeowners need the proceeds from the sale of their current home in order to purchase the new home, the process can come to an unwelcome pause leaving the homeowner in limbo until their home sells. Meanwhile, they might watch their dream home get snatched off the market.
Sometimes it is not just the equity in the previous home that is needed to buy a new one, but time can be in short supply as well. A change in employment that involves moving to a different city or state is oftentimes the reason that homeowners need to sell and buy at the same time, leaving not much time to settle in before the new job starts.
To avoid extra expenses and the potential of two mortgage payments at the same time, it’s usually a better idea to buy a new home after your current home is sold. But due to complications that can come up in life, doing both the buying and selling around the same time might be a homeowner’s only option. Fortunately, several options exist to make that big transition as straightforward as possible.
Bridge loans are designed to “bridge the gap” between when you can sell your home and when you can buy a new one. These are short-term loans that provide you will financing while you wait for your home to sell and buy a new one simultaneously. Bridge loans are secured by using the current home as the collateral. These loans can also offer some flexibility for buyers by removing the contingency offer on the new home, but they are also a little risky.
Not every lender will offer these loans, but if they do you have to be prepared to pay it back relatively quickly. These short-term loans are designed to be fully repaid in 6 months, which is much sooner than traditional loans. Occasionally a lender will extend the term to around 3 years, but this is fairly rare.
Terms and repayments will depend on the type of bridge loan you get. Some have traditional monthly payments while others require interest be paid upfront as a lump sum.
There are also the potential loan repercussions if your home never sells. If the buyer backs out of the deal and the sale falls through, your old home can go into foreclosure if you had planned to use the money to pay a portion of your new home purchase.
Qualifying for bridge loans can be a challenge as well. They are pricier than home equity loans (which are another option for those in this transition). This type of loan requires the individual to be qualified to own 2 homes, which is difficult to achieve. Lenders offering these loans also look for higher credit scores since bridge loans are so risky.
HELOCs and Home Equity Loans
HELOCs and home equity loans are a less risky alternative to bridge loans, with a lot of the same benefits. While these types of loans are still secured by your home, these borrow against the equity you have in your home, and the interest rates tend to be better than bridge loan rates. These are also longer term loans with repayment periods ranging between 5 and 20 years.
There is still a risk with loans as well though. If your current home doesn’t sell, you could end up paying many sums in cash every month for your original mortgage (if it hasn’t been paid off), the new home mortgage, and the home equity loan.
It’s not always easy to get qualified for these types of loans either because you have to have built up enough equity in your home. If you have enough, then a home equity line might be the best option for you. But if you don’t have enough, you might have to consider a different option.
Other Non-Loan Alternatives
If one of the loan types listed above doesn’t seem like a good fit for you, and you happen to come up with the down payment needed to purchase your new home, you can decide to rent out your old home if it still hasn’t sold. If the income you get from renting doesn’t quite cover the mortgage payment on that house, you can still chip away at the amount until it is small enough. If it so happens that you can’t find a long-term renter to stay in your home, you can also consider the option of making your home available on a nightly basis through AirBnb or similar services.
Another benefit of deciding to be a landlord and renting your home is the flexibility that comes with it. This can be perfect during the transition period until you have settled into your new home and more prepared to sell the old one. Or, if the market is competitive, you might decide that renting out your home could be a great source of extra income. Before you commit to this alternative however, you will want to make sure there are no home insurance issues or HOA stipulations that won’t allow you to rent out your home.
Always ask a lender or financial advisor what the best option would be for your circumstances in order to get the best deal for this transition period.