5 Mortgage Strategies To Consider When Selling and Buying Real Estate At Once
As people make a furious rush to either upsize or downsize in a hot market,
there are some often overlooked mortgage strategies to consider when buying and selling real estate at once. Failing to plan ahead can cause some serious stress and jeopardize the potential of your new home.
1. Get pre-approved before you sell:
Many people ask if you can get pre-approved for a mortgage before you have actually sold your home - the answer is yes. You can even get a firm commitment letter on a live offer before you have sold your home and both types of approvals will simply condition that your current home is sold before they advance the mortgage funds for your new home. Remember that this holds a mortgage rate for you and shows sellers you are serious about buying.
2. Bridge Loans in case you sell after you buy:
What if the home you buy has the sellers wanting to sell right away and the buyers of your home will be delayed and thus, you need to buy before you sell? You may not have the down payment ready if you sell later so can it be lent to you? With bridge loans at specific institutions, you can get the down payment lent to you and still get a mortgage before you sell your home as long as there is a purchase agreement and subject removal form that proves your home is going to sell shortly. The buying and selling dates need to be within 90 days for this to be possible.
3. Can you not keep both places?
Many people automatically assume that they need to sell one place for another but sometimes you can keep both and make short term cash and long term equity value. The key is ensuring that you work with a lender that has a very strong rental income policy as many banks can have a poor one. This essentially means that they will be favourable in how much of your rental income is considered when they qualify you vs. others who only take 50% of it. You also may need to ensure you are working with a lender who will not stress test you and put you on a longer amortization period so you can afford more and lower monthly payments.
4. Consider Private Lending:
If you cannot sell your current place before you buy, there are private lenders with open terms (and sometimes no upfront lender fees) who can advance you the funds so you don’t miss out on buying what you want. Once your sale is officially in motion, you can simply transfer the mortgage to a best rate mortgage lender.
5. Consider a proper “what if” plan:
Even in a sellers market, you may not sell your home for what you want and within the 90 day period that a bridge loan requires so you need to consider Plan B. Firstly, you can put a condition with the home you are buying that if your current home doesn’t have a signed purchase agreement, you can void the deal. You also want to consider what if your home sells for less than you wanted and now you may not have enough money for your down payment or mandated debt payoff on the new home. This contingency planning can all be modelled out on a spreadsheet with your broker and carefully planned.
THE BOTTOM LINE
When buying and selling your home at the same time, there is a lot you can do to not only prepare for worst case scenarios but, to be decisive and ensure your ideal new home doesn’t get away from you. Instead of stressing out about selling your home before you consider buying, you should be doing this process in parallel and plotting out alternatives and different scenarios. Remember that if you can keep both homes, that can be an ideal way to grow your wealth and also not stress about needing to sell.