When you’re buying a new home but already own one, there are several different ways to approach how to qualify for your new mortgage.

1. Qualifying for Both!

Not everyone has this leisure but if you have enough income to qualify for both mortgages, then you can buy the new one before even thinking about selling your current one. As a general rule (by no means a rule that applies to everyone, but will give you a good ballpark), you’ll want to make roughly double all your monthly payments in gross income. So if your current mortgage is $1500/month, new mortgage will be $3000/month, and car payment is $500/month ($5000 total between all 3 payments), you’ll want to make at least (if not more) $10,000 in monthly gross (before tax) income to qualify on a conventional. Many buyers that have this leisure will buy their new home before selling to allow a more flexible timeline on the sale of their current home. If you don’t have the down payment for the new home but qualify for both mortgages, see #4 (bridge loan) below! Many buyers will want to reduce their future payment by applying a large principal payment as they bought with a smaller down payment on the new home and are making money off the sale of their current home; this can be done with a recast – click here to read more.

2. Selling Before or on the Same Day that you Buy –

This option is great if you think you can sell your home quick and you can go under contract on your new home before your current home is sold. This can take some maneuvering and we always recommend using a great agent and a great mortgage broker (a bad agent or broker can easily cause chaos in a ‘simultaneous’ transaction where you’re selling and buying at the same time). Many homeowners will list their home for sale and request a slightly longer closing, to give them time on their future home purchase/search. If it’s a really hot market or you negotiate it, a homeowner may be able to negotiate a leaseback where you as the homeowner can lease the home back from the buyer that just bought it. Not all buyers and agents are fond of lease backs since there is more liability (like what if something breaks while you’re leasing back or you damage property on move out) but it can be a really good option to give you as the seller more time to move out and find your new home. As long as your current home is official sold before your new purchase, the payment from your old home won’t count against you and you’ll have the proceeds/profits from your home sale to use on the new purchase. And while it may seem like a stretch to buy the same day that you sell, we help buyers with simultaneous transactions all the time.

3. Going under contract (but not necessarily closing) before you Buy (GREAT OPTION) –

this one is the secret sauce that most lenders won’t tell you about! If you get a purchase contract on your home and all contingencies are waived, we can actually ignore your current mortgage as a debt payment against you so you only have to qualify for your new home. This is an amazing creative option for buyers that don’t have enough income to qualify for two mortgages. While you still need the down payment for the new home before you get your home proceeds (can come from savings, temporary 401k loan, bridge loan, etc), you only need to qualify for your new payment and not include your current mortgage. The key is to have a contract where your buyer is waiving all the contingencies at some point – so either a cash offer likely or in a hot market, many financed buyers will waive contingencies to become a strong buyer.

4. Using a Bridge Loan for your Down Payment –

According to the US Census of 2020, home equity is roughly 49% of America’s wealth. With that being said, if you’re buying a new home and trying to buy before you have sold or received the proceeds of your current home, it might not be that easy to come up with the down payment. If you’re looking for a great temporary solution. We have a bridge loan that will allow you to tap into up to 90%* of your current home value. So if a 401k loan, savings, or gift isn’t a great option, you can tap into the home equity (that you’re aiming to get by selling your home anyways) early! With this option you still need to qualify for both payments OR go with option #3 above, but it lets you tap into your equity so your down payment doesn’t have to come out of your savings. Click here for more details.

5. Using a Hard Money Bridge Loan –

There are a handful of hard money lenders (aka private high rate lenders typically) that will put a true bridge loan against both properties. We typically recommend this as a last resort as the rates are higher than regular loans and it comes with extra fees in most cases. Typically you’ll want to have 30-40% equity across the 2 properties (the one you will be selling and the one you’re buying). While we don’t originate these loans, we can share some contacts that do depending on your area. This is a good option if you definitely don’t qualify for both homes (recommend you speak to a local mortgage broker like us first) and you don’t plan on having a contract on your current home. Sometime we use this as a ‘Plan B’ just in case the above options don’t work.

Bottomline – there is more than one way to buy and sell a home with regards to financing. Reach out and we can help review your custom options!

*Bridge loan (the 2nd mortgage on current home) can be up to 5.50% rate / 6.587% APR as of 3/15/2022