3 ways to leverage your equity to buy a new home while selling the old one.
When it’s time to make a move, how can you buy a new home before selling your old one? While it is ideal and convenient to buy a new home first before selling your old one, this is easier said than done.
The average homeowner has a lot of equity in their current homes, but accessing that equity is challenging without selling your home first. The good thing is that you still have options, which I will be sharing with you today. Read on to learn the three best ways to leverage your equity to buy a home before you sell.
1. Home equity line of credit (HELOC). This is like a second mortgage, allowing you to borrow against your home value. This option lets you use equity without selling, and lenders usually allow borrowing up to 85% of your equity. HELOC approvals take time, so you need to act fast to get your approval before applying for your new home’s mortgage.
The good thing about this option is that you can pay back your HELOC using profits from your old home sale after you move into your new home.
2. Bridge loan. This is a short-term loan that uses your home equity as collateral. While not all lenders offer bridge loans, the ones who do let you borrow up to 80% of the combined value of your old and new properties, Compared to HELOC, bridge loans are approved faster and are a convenient option for qualified homeowners.
You must know that bridge loans have higher interest rates compared to other options and are usually only available to people with high credit scores and equity. On top of that, you also need to sell your old home quickly to avoid high loan costs.
3. Mortgage recasting. This option is best if you can manage to shell out an additional down payment on your new home. For example, you plan to sell your old home and use the proceeds to reduce your new home’s loan amount. This way, you decrease your monthly payments owing to the reduction in principle.
How this works is that you need to secure your new property before you can sell your old property. Upon closing your old home’s sale, use the money to make a lump sum payment towards your new loan’s principal balance. Your lender recalculates your mortgage based on the reduced balance, lowering your monthly payments while your interest rate and terms stay the same.
The best option for you depends on your specific situation. Contact us to discuss your situation and determine the best strategy to use before selling your old one. You can reach us by phone or email. We’ll be happy to help you.
