Obtaining a new mortgage while selling your existing home.

By
Mortgage and Lending with Academy Mortgage Corporation NMLS #229617

Life changes have a way of dictating when you need to start looking for a new home. Perhaps your family is growing, or maybe it's shrinking. There are a lot of things that can come up. 

Whatever situation you find yourself in, you are now wondering whether it's a good idea to get a mortgage on a new home while you're still in the process of selling your old home.

This is not an easy decision to make. In some cases, you can wind up paying two mortgages (and this can go on for longer than you might expect). At other times, you could find yourself with very little or no negotiating power.

The short answer is that you can get a mortgage on your new home while selling your old one, but it's a delicate balancing act.

Getting A Second Mortgage

Lenders are not strangers to getting borrowers second mortgages. As such, if you're looking to get a home loan on your next house before you've sold your old one, you can.

However, it may not necessarily be in your best interests, for reasons already described.

Moreover, even though lenders may be willing, they may not be able to underwrite an additional loan if your income and debt-to-income ratio aren't up to par.

Most buyers tend to get their down payment from the sale of their previous home, so unless you have the reserves for the down payment on your next home, you may not be able to do it without taking out a short-term bridge loan or a home equity line of credit.

There are also some alternatives emerging in the market. An interest-only loan can come in handy when dealing with two mortgages. The seller contributes money from the sale of his or her house to pay for six months of your home loan interest. This puts the buyer in a situation where their only expenses are insurance and property taxes.

Though you as a buyer will benefit most from this type of arrangement, an interest-only loan can help the seller to sell their home faster. The main advantage is that it gives you more time to sell your old property without having to make interest payments on two loans.

How Selling Without Closing Can Help

If your old home is conditionally sold without being closed, it can help you to make the transition towards your new dream home.

First of all, you may be able to reduce the amount of time that you still own your old home, and therefore mitigate your expenses as well.

Additionally, the loan on your old home may be disregarded by your new lender if you can provide them with a binding contract of sale. That contract can also help you to get a bridge loan if you need additional funds.

Conclusion

Ultimately, if you can avoid buying before selling, that would be the ideal. The hassle involved in trying to get a new home loan while selling your old house can be frustrating and costly if not handled well.

If there are no other solutions available to you, then it can be used as a last resort. Ensure that you have additional funds to cope with unforeseen contingencies.

Comments (2)

Paul Collier
Patriot Home Mortgage - Huntington Beach, CA
Paul Collier

Always tricky with the timing between buying and selling. Money and a viable back up plan (such as staying with family between in the buy/sell transition) is key. Thanks for some great information to pass on to clients dealing with this.

Sep 30, 2015 08:49 AM
DEANNA C. SMITH CERTIFIED MOBILE NOTARY
Certified Mobile Notary Signing Agent - Smith Mountain Lake, VA
Highest Ranked Certified Mobile Notary in Virginia

Timing is a matter of the entire transaction team working together to coordinate the two so there is no overlap.   I work hard to coordinate with all parties involved in both transactions to eliminate any issues.   In the end, making all parties happy is my goal

Oct 02, 2015 12:47 AM