Buying When You Already Own

It’s an age-old question. Which comes first: buying a new home or selling your old one? As we grow our families and make strides in our careers, we might find ourselves wanting to upgrade from our starter home to something more permanent. But how?

One answer is for your Loan Officer to create two separate loans for financing your new home. The first loan would typically be set up as the mortgage you want to end up with, while the second loan is based upon the expected net from the sale of your existing home. With this option, you eventually use the funds from the sale of your current home to pay off the second loan, leaving only the desired first loan.

The second loan is usually a HELOC (Home Equity Line of Credit), which is exactly what it sounds like. Using the equity you’ve built up in your home, a line of credit is opened with the added benefit of being easily accessible by the borrower as the balance is paid down. The interest is usually tax-deductible, so it can be a great tool for future purchases of cars, renovations, or education expenses.

Second loans can also be what’s called Purchase Money Second (or PM2) mortgages, which are closed-end loans. Unlike with a HELOC, PM2 funds cannot be accessed as they are paid off.

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. However, some restrictions apply, so you should contact a NOVA Loan Officer for details.

A Bridge loan, which enables you to borrow against the equity that is tied up in your old home until it sells, is another option. There are risk factors to consider before deciding that a Bridge loan is right for you. For instance, Bridge loans tend to be more expensive than PM2 loans, because they’re considered to be cash-out refinances. They also tend to be short-term loans with balloon payments. 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.

If you are looking to buy your second home and need help navigating your existing loan, apply now to speak with a trusted NOVA Loan Officer!