Buy Before You Sell. Too Risky Right? Wrong!
Common Home Owner Myth: I can't buy a "new" house without first selling my "old" one.
That is the way it is supposed work,right? You can't have a new house without getting rid of the "old" one.
Take for example, the story of one of our clients. They had a house (beautiful house, worth about $600,000) and had no intention of leaving even for oceanfront property.
However, one day this house in their neighborhood went on the market. You know the house. It is the one where every time you go by, you wish it was yours. Unfortunately, this house would never be for sale.
Out of the blue, the unbelievable happens: the house goes up for sale.
Now most would call this a stroke of luck, then it would dawn on them...
"We can't have that house. Obviously, something unforeseen as happened, and they'll want a quick sale. Waiting for us to sell our house first, won't be acceptable to them. I guess we are out of luck."
Luckily, this client called us to structure a safe way for him to get his dream home today, buy some time to get his "old" house sold, make both homes affordable during the marketing period, and leave him the exact same long term financing on the "new" home he otherwise would have had.
Now that's a tall order! But we did it. And, so can you!
Here are 2 ways to buy a new house without selling your "old" one first.
Pull the equity out of your existing house using a Home Equity Line of Credit or a 2nd mortgage. If you could snap your fingers and sell your home, this would be what you'd use to buy the "new" home anyway. So just get it out now. Now, reserve enough of this money to make your "old" house payment for 6-12 months. Your house will take this long to market and with the money set aside you won't be tempted to take a low-ball offer. Use the remainder as down payment and get your new first mortgage to complete the purchase. When the "old" house sells, both mortgages are liquidated and you are left with one house and one mortgage,the exact same situation you'd have had if you sold your "old" home before you bought the "new" one. But you accomplished it without the wait and the missed opportunity!
Another way to achieve the same result minus the "old" house payment reserve is to use an 80% first mortgage and a 20% 2nd mortgage also called 100% financing, to buy the new house. You won't have to put any money down and when your "old" house sells, you use the proceeds to pay off the 2nd. The only difference is you don't get any "extra" money to use to offset two house payments during the marketing period. Many of you, have existing lines of credit or other sources, so this may not be necessary.
Both scenarios leave you with great permanent financing on the new house.
The 80/20 or 100% financing scenario costs a little more in discount points than a traditional structure, but it's only to the costs and not the rate. Refer to our website to learn more about 100% financing in our free report called, "Buy With Zero Down!".
The biggest hurdles you'll need to clear are 1) making two housing payments and 2) getting loan approval with two housing payments.
Here's how you do both:
When you pull the money from your existing house, reserve enough to cover up to 12 months mortgage payments for the "old" house while it is on the market. That way you don't have to come out of pocket for the payment. Gee, that was easy! Hurdle 1 cleared!
Since most loans are approved through a computer these days, you'll need a mortgage broker who knows how to use the automated approval computer systems that FNMA and other agencies and lenders use. These approval systems are a Godsend when it comes to creative financing in today's modern mortgage arena. It may seem strange to you, but to the computer, your financial picture and your need for financing, are simply numbers. It doesn't care that some of those numbers include 2 housing payments. The new systems are allowing many of our clients an approval with abnormally high debt ratios, sometimes as high as 60%! This is very prevalent, especially with clients who have strong credit and assets after closing,like a 401K. This is your window for approval. Now, you know you'll not be spending 60% of your income on debt, because you put the money aside in Step 1 to cover the "old" house payment, but the computer doesn't know that or care. If done right, you'll get the approval even with very high debt ratios.
Note: Beware! Don't let an unscrupulous mortgage broker get you to commit mortgage fraud just so you can buy before you sell. Stick with our plan. If you get approved fine. If you don't, live with it. One way they'd break the rules to get you approved is to "doctor up" a lease agreement on your "old" home to offset the payment and show the computer a lower debt ratio. Don't do it,it's a Federal crime!
How do you start?
1) Get approved through the computer system
2) If you need to pull equity out of existing house; start it now
3) Write offer on new house
4) When offer is accepted, put existing house up for sale; not before
We know people that use these tactics every day. So don't worry. It is ok to step out of the box sometimes and put away some of the outdated concepts about financing a house.
Happy House Hunting!