Usually the next house you want to buy is going to have a higher price tag than your current home.
Making an offer on that next home can prove to be tricky if all you can put down is 10% or less on a new house.
So before you buy your next home, should you sell your current house, rent for a while, or just buy the new house?
How about taking out a HELOC to make your down payment larger, then you’ll own two homes and have two payments?
What about using a “bridge loan”, to get by for 3-6 months?
If you have the income to easily pay the costs of two mortgages – but the only issue the lack of down payment for your next home, a bridge-loan scenario, then refinance and pay off the bridge loan when you eventually plan to sell the current home.
However, most homeowners don’t want to take on the debt obligation for two mortgage payments at the same time.
In some cases, you could end up “stuck” with two mortgages for 6-9 months.
The reason you want to do this is because many prospective home buyers put a contingency on the sale of their current home in their purchase offer. If you are in the process of doing this in Orange County, you may find your offer not accepted countless times. If the sale of your current home will provide you with more funds to put down to the tune of 25% or 50% , your offer is a lot stronger in the seller eyes.
Certainly, in a very hot seller’s market, the seller still might not be interested in your offer even if it doesn’t have the sale of your home contingency clause because there may be all cash-buyers.
It’s important to let your realtor understand your goals and price your existing home properly when your offer is not contingent on the sale of your home. If your realtor prices your home much higher than similar homes in your neighborhood, possibly to assure them of a higher commission, they may not be factoring as every month passes, you’re making two mortgage payments. This eats right into the expected profits. Don’t let them off the hook with their common response of “the house will sell when the right buyer comes along”.
Think about if you had your home for sale. If you receive offers with FHA financing, 3-5% down, contingent on sale of their property (which may be overpriced) or closing dates 3-4 months out are the least considered. When receiving multiple offers, the simplest and least complicated offer is chosen. The offer most sellers will accepted are those with a large down payment, such as 30-50%, and have a quick closing date.
The worst part about selling your home early is you have to move your personal belonging into a storage unit temporarily, and then find a short term rental. By doing so, you can submit a stronger offer with a large down payment like the one you accepted on your home.