Navigating the current housing market can be daunting, especially with tight inventory and rising demand. Many homeowners face the dilemma of whether to buy a new home before selling their current one. This guide explores four practical strategies to help you buy your next home without the stress of being temporarily homeless.
- Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit (HELOC) leverages the equity in your current home to finance the purchase of a new one. This option requires a solid income, sufficient equity, and good credit—typically a score above 680. HELOCs offer up to 90-95% combined loan-to-value, depending on the lender, and are tied to the Prime Rate plus a margin.
Pros:
– Affordable and Simple: Often free to obtain with straightforward qualification.
– Access to Cash: Provides significant funds for your new home purchase.
– Interest-Only Payments: Manageable monthly payments.
Cons:
– Processing Time: Can take a while to secure.
– Qualification Impact: May affect your ability to qualify for a new mortgage.
- Making You a Cash Buyer
We’ve crafted a solution that turns you into a cash buyer, enhancing the appeal of your offer and giving you a competitive edge. The NEO Power Buyer Program eliminates the common obstacles with traditional financing, such as mortgage contingencies and extended closing times.
Pros:
Competitive Edge: Cash offers are more attractive to sellers.
Simplified Process: Avoids the complications of traditional financing.
Faster Transactions: Allowing you to buy your new home before you sell your exiting home (in as little as 14 days).
Cons:
Power Buyer Fee: There is a fee for the use of the funds and interest accrues until you close your long-term financing.
- Bridge Loans
Bridge loans offer a temporary financial solution, allowing you to use the equity in your current home to purchase a new one. Our preferred bridge loan option lets you borrow up to 75% of your home’s value without immediate payments, provided you sell your home within seven months.
Pros:
Substantial Funds: Access to significant cash for your new home.
No Immediate Payments: Easier to qualify for a new mortgage.
Quick Process: Close in as little as 14 days.
Cons:
Costs: Fees of 2.3-2.4% of the loan amount.
Equity Requirement: Must have a 25% equity cushion post-loan.
- Renting Out Your Current Home
If you can afford to, renting out your current home can be a smart financial move. Keeping your home as a rental provides a steady income and multiple inflation hedges. Future rental income can also help you qualify for a new mortgage.
Pros:
Retain Low-Rate Mortgage: Keep the benefits of your existing low-rate mortgage.
Inflation Protection: Homes and rental income generally rise with inflation.
Additional Income Stream: Generate rental income.
Cons:
Landlord Responsibilities: Managing tenants and property upkeep.
Financial Risk: Vacancies can impact your finances.
Qualification Challenges: Future rental income may not fully offset your current mortgage payment.
Buying a new home before selling your current one is a strategic decision that depends on your financial situation and goals. Whether you choose a HELOC, the NEO Cash Buyer Program, a bridge loan, or renting out your current home, each option has its own advantages and considerations. Evaluate your needs carefully to select the best approach for a seamless transition to your new home.
Ready to explore your options for buying a new home before selling your current one? Contact NEO Home Loans today to discuss the best strategy for your financial situation and goals.
