Buying Without A Sale Contingency

Perhaps you've found a job that is available all over the country, or your family is expanding. No matter what, you will need to sell your home and purchase a new one. This means that you will be paying the mortgage on the existing house (until it is sold), and you will also be saving earnest money for a down payment.

Money can get tight depending on how much you save and how long you anticipate the move. You might not have enough equity in your home to purchase a new one.

Home Equity Loans

You might consider a second mortgage to help finance your downpayment if you don't have enough money but have equity in your home. You have two options: a Home Equity Line of Credit (HELOC) or a home equity loan.

Both options let you borrow against the equity in your home. A HELOC will give you a credit line you can borrow against. This is similar to a credit card. A home equity loan will give you a lump sum of cash. Both will charge interest on the amount borrowed each month. A HELOC has a variable interest rate. A home equity loan, on the other hand, usually has a fixed rate. You can pay off a home equity loan in as little time as you want, and you will be able to make lower monthly payments on your credit card.

You should act quickly if you are considering a home equity loan. Lenders who consider you for a loan for your new home will need to verify that you have had the money in your bank account for at least six months.

Low-Down Loans

Consider putting your current home on the market and buying a low down payment loan if you are flexible with your move.

The lender will add your mortgage payments to your monthly income to calculate your debt-to-income ratio (DTI). This ratio is a comparison of your monthly recurring payment to your gross monthly income. Lenders want your DTI to be no higher than 43 percent.

There are many options available if you meet the criteria. Qualified buyers can get conventional loans from participating lenders backed by Freddie Mac or Fannie Mae at a 3% discount. FHA loans are available with 3.5% down. VA loans are available to service members and require no down payment. If your property is located in rural areas, you may also be eligible for a USDA-backed zero-down loan.

You may also find loan types that are suited to a situation where you need to sell your home.

80-10-10 (Piggyback Mortgage)

A piggyback loan covers 80% of the purchase price and provides a simultaneous first and second mortgage.

Buyers can avoid PMI by using this loan type. However, the down payment is less than 20%. When you sell, piggyback loans can be a benefit: The proceeds of your sale can be used to pay off the second mortgage, and you will have a smaller first mortgage than if you had made an earlier down payment.

Here's how they work. The first mortgage is for 80%. A second loan, a loan for home equity, can be opened simultaneously at 10% of the purchase price. The borrower must make a 10% downpayment from their own funds.

Lenders may offer different loan/payment ratios, such as allowing a 15% second mortgage and a 5% downpayment.

Bridge Loans

A bridge loan is another loan type you should consider. Although bridge loans are less risky than home equity loans, they may have higher fees.

Bridge loans are short-term loans that bridge the gap between a buyer's mortgage and the sale price of a home. First, the buyer's current home is used as security. Then, the bridge loan funds are used to make a down payment on the new home.

Talk to a lender if you are interested in a bridge loan. Conforming loans may not include the bridge loan payment if you are qualified. The borrower can buy the move-up home by adding the existing loan payment on the buyer's home to the new mortgage payment.

Lenders may be able to accept a higher DTI if the new mortgage is a conforming loan. This can be done by using an automated underwriting program. Most lenders will accept up to 50% DTI if the new mortgage is a large loan.

Bridge loans have different fees and payment structures. You might be able, for example, to pay the loan off in a few months. However, interest will accrue during this time and become due upon the sale of your home. A loan origination fee can be as high as 1% of the loan amount.

Making Your Move

It can be stressful to sell your house and buy a new one at the same.

Take your time. Do your homework. Don't be afraid to ask for help. There are many real estate professionals, agents, and lenders who can assist you.

You don't have to make a conditional offer if you are in a difficult market. However, there are loan options that can help you become a more attractive buyer and get the home of your dreams.