We often have borrowers in a hurry to buy a new home before they sell their existing residence. Here are the options for borrowers not wanting to sell their existing home:
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 lenders 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 (lenders will not exceed 85% LTV in most cases). Homeowners also must tell the equity line lender they intend to live in the residence.
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 probably our most popular option.
Debt Ratio Considerations – “Renting” the current home. Many borrowers who want to buy before they sell cannot do so b/c the debts against the old and the new homes push their debt ratios too high. If the borrowers have sufficient equity in their current residence (25% to 30%), they can “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.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646