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One way your Loan Officer can structure the financing on your new home is to set up two separate loans for the purchase. The first loan would typically be set up to be the mortgage you want to end up with. Meanwhile, the second loan amount is based upon the expected net of the sale of your existing home.
This way, when the sale of your existing home is complete, you can apply the net funds to payoff of your second loan, leaving only the desired first loan.
The second loan is usually a Home Equity Line of Credit (HELOC) or a Purchase Money Second. A HELOC is exactly what it sounds like, a line of credit based upon the equity in the home. This has the added benefit of being easily accessible by the borrower as the balance is paid down. The interest is usually tax-deductible, and this can be a great tool in the future for the purchase of cars, home improvements and even your child's college education. A Purchase Money Second is a closed end loan. Unlike a HELOC, as it is paid off, the funds cannot be accessed.
There are a few lenders who will not count mortgage debt against a borrower if the existing home is currently listed by a REALTOR® in the Multiple Listing Service (MLS). Most lenders, however, will count this debt against a borrower. Should this be the case, there are still several ways a homebuyer may qualify to purchase a new home, prior to the sale of the existing home.
A homebuyer may choose to lease the existing property, even for a short time. This has the advantage of allowing for more time to complete the sale of their property, as well as providing an additional source of revenue to offset the original mortgage debt service.
A Bridge Loan is another option. A Bridge Loan enables you to borrow against the equity that is tied up in your old home until it sells. There are risk factors to consider before deciding that a Bridge Loan is right for you.
Bridge Loans tend to be more expensive than Purchase Money Seconds, because they're considered to be cash out refinances. They also tend to be short-term loans with a balloon payment. If your existing home doesn't sell in the projected time frame, you could wind up having to pay the total balance all at once. |
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