So You Want a New House But You Already Own

Many people are faced with the challenge of needing to buy a new house while they already own one. This is most often the case when a move warrants switching houses. What is the best way to handle this situation? Buying a house isn’t as easy as it used to be.  Buying your new home while maintaining your current living situation may be the preferred choice for ease of transitioning from one place to another, but this approach can be a bit tricky. In this blog I will address the proper technique for handling a situation like this.

There are many reasons why you may need to buy a house while you still own one; 

§   You need to relocate for work or personal reasons

§   You may have found the house of your dreams at a great price and you don’t want to let it go

§   Hotels can run you thousands if you stay in one after your house sells while waiting for your next

§   You want to meet the deadline for a specific tax credit

§   The mortgage rates are excellent and you want to take advantage of that to upgrade to a better house 

In the past, purchasing a new house before selling the old house was not a difficult task – you could rent the home and use the new rental payments to help offset the existing mortgage payment. Now it is more difficult because the laws have changed to protect lenders from losing money on “walk-away borrowers”, a person who strategically defaults on their mortgage to avoid foreclosure.

Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) have gotten tougher with their requirements for sellers who are in the market to buy and want to rent their existing homes. If you want to use the new rental payments to offset the existing mortgage, the lender will require that you have 30% equity in your home as evidenced by an appraisal (FHA requires only 25% equity). Again, this is to stop strategic defaulters. If you don’t have the required equity in your residence, whether you rent your home or not, you will have to qualify carrying the entire existing mortgage payment. Additionally, if you already have an FHA loan you will not be able to obtain another one as FHA, for the most part, only allows borrowers to have 1 FHA open loan at a time.

You may have enough equity in your home and the ability to carry your existing mortgage payment; you intend to sell your home, but you want to purchase your new home before you sell (thus having the ability to write a contract that is not contingent on your sale). In this scenario you may need to borrow funds until you can sell your current home. You have some options, such as a “bridge loan” - tapping into your home equity, or as your last resort, you could borrow from your retirement savings. You should run these numbers by your mortgage lender to understand the consequences of each action.

You may feel that you just don't have a choice and moving into a new home while you still own another is unavoidable. It is not impossible to do, just be prepared for some extra hoops to jump through, and let your mortgage lender guide you to the best options for your situation. This is a situation we handle frequently, and it's only one of the many things we're good at. Contact me and I can help you with the processof transitioning into your new home.