If you have ever written a contract with a home sale contingency, you already know that it puts you, as a buyer, at a serious disadvantage over your competition. If your home has plenty of equity and you know it will sell, but the timing is not right, you could look at some other creative ways to buy your new home before selling your current home.
If you’re comfortable with making a lower down payment on your new home than you had planned on, you could use a first and second mortgage to obtain maximum financing to purchase your new home. Your second mortgage would be a home equity line of credit with an interest only payment.
Once your current home sells, you can then take your sales proceeds and pay off, or pay down the home equity line and then have an open line of credit that you can use anytime you need it.
This plan does not work in every situation, because you still need feel comfortable with the payment on the home equity line and the fact that you’ll be carrying 3 mortgages at once, however, if you’re very certain that your current house will be sold very soon, this strategy could work like a charm.
In many cases, we could structure the loan so that the first mortgage was at 80% or less of the sales price, which means no mortgage insurance. Once the line of credit is paid off, you’re only left with the first mortgage payment and no mortgage insurance.
This strategy can be accomplished with as little as 5% down up to a maximum sales price of $908,000. Higher prices could work as well, but the down payment requirement would go up as well.
EX: Sales price – $908,000. 1st mortgage amount @ 80% = $726,400, 2nd mortgage $136,200, down payment @ 5% = $45,400.
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