In the last few years, many consumers bought homes with low down payments and have seen a dramatic rise in their home-equity-opening the door to trade up to more a desirable homes and/or locations. Perhaps the family is expanding and or timing is right to trade up. As attractive as the concept sounds, due to the tight lending standards, taking the right steps should be the main focus. How to payoff one home, and use the ‘net’ proceeds from the sale to purchase home, and still get the loan.
Steps To Buying & Selling
Mortgage lenders are still restrictive on debt ratio, most allowing no more than 45% of the monthly income, with changes coming in January 2014 reducing this percentage to 43%. The reason most sell one house in exchange for another is because they don’t have enough income to carry two mortgage payments, don’t want to be a landlord and/or need the equity for the down payment on the new home.
Get Pre-approved For Loan– have the lender issue you a preapproval as though your current home is already sold/closed. By having the lender omit your housing liability, your projected debt ratio is reduced, making your credit picture look better on paper. This pre-approval can include the down payment from the sale your current house.
Use A Real Estate Agent-Get professional real estate representation, your home depends on it. Here’s why: your agent can represent you on the buy side on your new property facilitating a successful and smoother process for both transactions because they can communicate with the other agents as the intermediary- solidifying both sales up through close of escrow.
Write A Contingent Purchase Offer –it’s well known a contingent offer, that is, one property selling in exchange for being able to perform another is weaker than if there is zero contingency. While this is certainly true, contingent offers are becoming more common, and transactions are still closing on ‘contingent basis.’
Release Loan Contingencies At Same Time- In most real estate contracts, you fully commit yourself to purchasing the property at 17 days. During the first 17 days, it’s expected of you as the home buyer to make sure your lender attains loan approval. After your loan is approved, release your contingency at the same time the buyer of your home releases their contingency, that way you don’t release contingencies on a property risking the possible forfeiture of your initial earnest money deposit if the buyer of your property can’t perform.
Quite often, most can have a larger home or be in a more desirable neighborhood for the same and/or slightly higher mortgage payment on the new property. How is this possible? When you take into consideration the size of the down payment generated by selling one property, it has a dramatic effect on not only buying power, but also payment threshold. *Remember as a general planning tool, it’s $725 per month in mortgage payment for every $100,000 financed.
Looking to purchase a home? Not sure where to start? We can walk you through the process and offer you a complementary mortgage rate quote, no strings attached. Start today and learn more about how Scott Sheldon can help you accomplish your home buying goals.