Selling one home and purchasing another home

Selling your primary residence and purchasing a new primary residence can be a stressful experience. Many people find the need for a larger home as their family grows or a new employment opportunity can require relocation. Proper planning with one or more real estate professionals and a mortgage professional can take much of the stress out of the transition.

Most people want to use their equity from their current home and use it as a down payment on the new home they are purchasing. In a perfect world, one can close on both a home sale and new purchase in the same day. However, with many variables in place such as finding a buyer for your current home AND finding a new home to purchase and close on often makes this type of simultaneous transaction impossible.

There are many ways to take advantage of the equity of your current home without having a simultaneous closing. The cheapest and easiest way to access your equity is by obatining a Home Equity Line of Credit(HELOC) on your current residence PRIOR to listing your home. The main benefit of a HELOC is that their are few closing fees and you only pay interest on the balance you draw. You can also borrow up to 100% of the value of your home if you qualify. You will not need to draw a balance until you close on your new purchase and you will pay off the loan when you close on the sale of your current residence.

If you have already listed your home, you may want to look into a bridge loan. A bridge loan is interim financing to facilitate the sale of a new home while your current home is listed. Typically, a bridge loan allows one to borrow against up to 80% of their current properties value, minus current liens. The fees for a bridge loan are typically higher than that for a HELOC as well.

Another way to facilitate the purchase of a new home is through 90%-100% financing on your new home in the form of an 80/10, 80/15,80/20, or even 75/25 "combo" loan. This form of financing incorporates 2 loans: the first loan being the long term financing you wish to have after your current property closes and the second loan being your interim financing. Typically, the rates and terms for 100% combo loans are slightly higher than "standalone" financing, however, a small down payment of 5% or more will get you about the same rates you would get for standalone financing.

Make sure you sit down with your mortgage professional to find the best options for your needs in this type of transaction. Proper planning and the right choices can save you thousands of dollars in the long run.

Selling your current home with a Realtor will most of the time be very advantageous over trying to sell your home yourself. Selling with a Realtor will generally make sure that you set your home price at the correct value and you are not trying to undersell your home or oversell your home. Underselling your home can cost you thousands and many times tens of thousands of dollars, while trying to oversell (overprice) your home may cost you many potential buyers from even viewing your home. This can result in a longer period of time to sell your home, which can eventually force you to lower your asking price numerous times, which in turn could cause people to think something may be wrong with your home. People who sell their home with a Realtor sell their homes faster on average than those who do not. Therefore, finding a reputable Realtor to sell your home is highly recommended while you are looking to purchase a new home.

Bridge loans are a strategic alternative designed to help borrowers utilize the equity in their current homes to finance the downpayment on their new homes.

» DISCLAIMER: The information contained in this article on 'Selling one home and purchasing another home' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.