There are many ways to purchase a new house as an investor. For example, you can use hard money loans California, but most hard money lenders expect a high return for their investment, especially if they are private investors. However, when trying to purchase a new home before your house sells, what are your options? Many people need the equity from their home to afford a down payment, and others fear they will get stuck with double mortgages they can’t afford. Thankfully, home sellers and buyers have options for finding funds without the immediate sale of their current residence.
Most people need to sell their current residence before buying a new one to free up the equity since the immediate need when looking to buy a house is a down payment. Bridge loans for homes can help with this predicament because it is a short-term loan. However, keep in mind these loans are high-interest and best suited for freeing up funds until your house sells. Never borrow more than you need for the down payment on a house, especially if that sum is higher than the equity of your current home.
Home Equity Line of Credit
If you want to use your home equity before selling it, consider a home equity line of credit. Primarily, you are taking out a second mortgage, but you can use the cash to buy anything. You also have no obligation to use the entire available amount. With this loan type, you will have a draw period to access all or a portion of the equity funds.
Many 401(k) plans allow contributors to borrow against their investment, but you will need to check with your plan administrator. The IRS also has guidelines and restrictions in place to protect an individual’s investment. If you wish to fund a new home this way, ask about interest rates, repayment periods and whether personal residence loans are available.
Doing a cash-out refinance is like a home equity line of credit, but more advantageous for the borrower. Instead of taking out a secondary lien on their existing property, a refinance pays off the existing mortgage and establishes a new one with the equity included. The borrower can then receive the capital in cash to pay a down payment on a new property.
If you have the option to sell before buying or finding a new home, you can use a contingency to protect your interests. A sale-leaseback contingency is an agreement that allows you to sell your current residence, freeing up necessary funds, without having to move. You agree with the buyer to pay so much in rent for a specified term.
In certain situations, a lender may allow a borrower to use gifted funds for a portion of the down payment. However, while a family gift is excellent, you still need to put up something. Most lenders require buyers to use a minimum of 5% of their own money. If you use a gift, ask about any necessary documents and proof.
You don’t always have to complete the sale of your current home before purchasing new. Contact a bridge loan or other moneylender for more information.