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"Buy Before You Sell" - Home Buying Options

By Todd Galde

When an existing homeowner wants to buy a new home, usually they have to first sell the old home, rent for a while, and then buy a new home with a new mortgage and the proceeds from their sale. This process can be extremely stressful, having to move twice and find an interim place to live. Even if one is able to find a new home to purchase immediately after selling there is still the need to rush the transition. This can bring with it a whole new dimension of strain.

Now, what if you could remove the "moving twice” trauma? It may be possible with loan options for buying the new home first before selling the old home. If there is enough equity in the old house to satisfy the combined loan-to-value (LTV), one can leverage the equity in their current home without having to sell it first.

Here are Five Solutions for “Buying Before Selling”

Bridge Financing – Collateralize current home with a short term loan to acquire liquid assets for down payment on new home. No prepayment penalty and can be closed in one week.

Cross Collateralization – Utilize one loan across both properties to avoid selling current residence and allowing buyer to make a non-contingent offer on the new home. This will be more appealing to the seller since the seller does not have to wait for the contingent sale of the buyer’s old house, which also makes the buyer more competitive and on equal footing with other non-contingent bidders for the same house. Cross Collateralization is typically used to apply equity in one property as down payment for another. It is designed as an alternative to bridge financing and is one loan with two Deeds of Trusts and a release price on each property. When the current home sells, its release amount is deducted from the cross collateral loan amount and the loan is automatically recast at no cost. Typically, 75% of market rent from a rent survey is applied to income if the existing property is not listed.

“Departing Residence” Program - Use “rent” on current home to offset mortgage, even if property is on the market, with no rental agreement, and no equity requirement on the departing residence.

Asset Depletion – Create additional income from existing interest-bearing assets that buyer doesn’t want to touch; eligible assets amortized over 15 years at the current 10-year bond rate.

Traditional Solutions – Qualifying with current income, utilize 1st/2nd combo to reduce down payment, paying off 2nd on new home with proceeds from sale of departing residence.

In a rising market, buying a new home before selling the old one not only saves the stress of moving twice, but surprisingly the increased equity in the more expensive new house may cost the home buyer less, thus offsetting the costs associated with carrying two mortgages.

For More Information, please contact me at 925-381-8190. Together we can structure a plan for you to make the transition as smooth as possible.

Todd Galde | Sr. Mortgage Advisor
Call/Text: (925) 381-8190 | NMLS # 256864