Question: We are buying and selling a home simultaneously and our lender has provided us with a few options to qualify for the purchase without making our offer contingent on the sale of our current home. Do you have any tips for choosing which mortgage product is best for us?
Answer: Buying and selling a home at the same time can be a complex transaction logistically and financially. I explored the seller side of home sale contingencies in October, but here I’ll share the advice I give buyers who face difficult financing decisions. Tip of the day: it’s not just about getting the lowest interest rate.
Weigh Your Options
Selling your home before making a purchase may afford you the best loan options, but it doesn’t always make sense for buyers:
- It weakens your negotiation position on pricing (you’ll pay more) and your ability to compete for new listings
- You weaken your position on the sale side, with more pressure accept an offer quickly
- For many families with children and/or pets, selling your home while living there is a logistical nightmare.
Mortgage Solutions
Certain lenders have a wide range of loan products to help buyers with limited cash reserves for a down payment, but substantial equity in their homes, qualify for a home purchase without a home sale contingency. The options include a Home Equity Line of Credit (HELOC), a second trust loan in which a large portion of your down payment comes from a second interest-only loan, and bridge loans (less common). Each of these options come with different short and long-term costs, so it can be difficult to decide what is best for you and your family.
Get A Professional Opinion
Most real estate transactions involve three professionals – your agent, your lender, and your title company, but when you’re faced with complex financial decisions, I highly recommend using a Financial Consultant to help you determine which financing option suits you. Your lender can explain the cost, pros/cons, and time constraints of each loan option and your agent can explain how different types of loans and contingencies will impact your transaction, but a good Financial Consultant will be able to help you determine the best way to leverage cash, debt, and tax write-offs to maximize your financial position.
Financial Consultants should do more than help you pick mutual funds for your retirement accounts and act as an expert sounding board when you’re facing major life decisions, like how to finance your home purchase. They can build models and run scenarios within the context of your personal savings/investment plan to help you make your decision. Although an experienced advisor can provide great advice with limited knowledge of your personal finances, you’ll get the most from somebody who has a complete picture of your finances and goals, so engage a professional early, if you haven’t already.
If you’re looking for a recommendation, Carl Grund (CFP, CPWA, AIF) with Signature Financial Parners has helped multiple clients of mine with difficult real estate decisions and is a local Arlingtonian. Feel free to contact him at [email protected] or (703) 287-7128 for immediate or future advice.
