How to buy a house when you still own one

You may find yourself in the position where you need to buy a house while you still own one. How to accomplish this feat is a dilemma that many people confront. Very few people are able to sell a house and go straight into another one.  Unfortunately, the housing crisis has prompted a situation where financing and obtaining a house aren't as easy as they used to be. In this blog I'm going to 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 are trying to make the deadline for a specific tax credit for repeat home buyers
• You are going through a recent job change or transfer
• You may have found your dream home and don't want to lose it
• You don't want to pay for or live in a hotel for weeks after your first house sells

In the past, purchasing a new house before selling the old house wasn't a difficult task – you could rent the home and use the new rental payments to help offset the existing mortgage payment. Now it is harder for legitimate sellers to buy new homes. The main reason for this is to keep lenders from losing money on walk-away borrowers, a person who “strategically defaults” to avoid foreclosure. 

Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) have gotten much 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, then whether you rent your home or not, you’ll have to qualify carrying the entire existing mortgage payment.  Additionally, if you already have an FHA loan and want to obtain another FHA loan, you will most likely be out of luck 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 isn’t a problem;  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).  Chances are money will be tight; if you don’t have enough in savings, you’ll 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. Whichever works best for you is what you should do. The economy is still very tight and there is no need to put yourself in a tough spot.

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, but the system is designed to be wary of frauds, so prepare for some extra hoops to jump through.

We help people get into new homes while still owning another quite frequently. It’s one of the things we do well. Contact me here and we can help you with the process of transitioning into your new home.