Here are several options for buying a new home before selling:
1. Bridge Loans. These are temporary loans against a borrower’s current residence that can be used to help finance (provide down payment funds mostly) a new residence. The drawbacks include their expense, their tight underwriting guidelines, and their significant equity requirements. Bridge loans are difficult to qualify for.
2. Equity Lines. Most banks provide free equity lines against a primary residence. These too can be used for down payment funds. The drawbacks include the time it takes to close an equity line (about a month), and equity requirements (some lenders will not exceed 85% CLTV). Homeowners also must tell the equity line lender they intend to live in the residence (borrowers must be owner occupants).
3. 3.5% FHA financing, and refi later. Many buyers simply use their savings to buy a new house with FHA financing (with minimal down payment funds), and then refinance into conventional financing after they sell their current residence. This is often the simplest option.
Debt Ratio Considerations: (1) “Renting out” the current home. Many borrowers who want to buy before they sell cannot do so b/c two housing payments will push their debt ratios too high.
Borrowers can, however, rent out their current residence to gain additional qualifying income. We can use future rental income as long as borrowers provide a copy of a rental agreement, a check from the renter, and proof the check was deposited. (2) Some lenders ignore the payment on a current residence as long as it is a “pending sale” (offer accepted but not closed) with “contingencies” removed.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 310167
