When you’re searching for a new home, your hope is that you’ll find something that will suit your needs. But be careful what you wish for. Even if you do find the perfect house that you want to purchase, suddenly, you’re faced with one of the toughest scenarios in real estate. How are you going to manage the financing? You probably can’t afford two mortgage payments for any length of time. And where exactly is the down payment money going to come from if you haven’t even sold your first home yet? It’s a conundrum that many people face. Fortunately, there are some creative solutions that will help you to avoid being stuck with two homes.
Money for a Down Payment: Get a Non-Conventional Short Term Loan
As far as getting the money together for a down payment before you’ve sold your first home, there are a couple ways to try. For one thing, you could ask for a short-term loan from a close family member. To help keep things business-like and protect the interests of both you and your relative, make things official. Draw up a promissory note that includes the repayment terms (payable when the funds are received after your current home sells), and interest credit if applicable. A second way to get the down payment money to buy your second home is to take out an equity loan (HELOC) on your current house and repay it immediately after the sale of your home is finalized. You may have to pay a nominal early payoff fee, but that’s a small price to pay for getting your new dream home.
What to Do About Having Two Mortgages
Now that you have the source of your down payment figured out, there’s still the sticky problem of what to do about having two mortgages. You have several options.
1. Go Ahead and Take on Two Mortgages and Hope for the Best
The first option is to just go ahead with your plan. Put your house on the market, and buy the second home. You’ll have to carry two mortgages for at least one month. But if your home sells quickly, you’ll be off the hook for the old mortgage payment. If you’re moving in a seller’s market when inventory is low, there’s a strong chance you’ll be able to sell your house quickly. The benefit to this method is that you don’t have to wait for anything and you can go ahead and move into your new home. It’s a gamble, though. You are risking your credit, and even your property if you fall behind on payments. If you honestly can’t afford two mortgages for any length of time, consider the rest of the following ideas.
2. Arrange a Rent Back Contingency With the Buyer of Your Current House
Another option is to live as a renter in your current house after you sell it. This may sound strange, but it’s not that unusual. Your real estate agent can negotiate with the buyer’s agent for you to rent out your current house for a limited amount of time after the sale. Sixty days is typical because it gives you time to shop for a new house and have your closing. During that time, the buyer of your current house gets a bonus because you’re paying rent to them on the house they just bought. You also get a bonus because you have the money from the sale of the house in your pocket to use as the down payment on your new house. The downside of this is that you need to not only find a buyer for your house, but one who will agree to let you rent for a predetermined length of time.
3. Live in a Rental Apartment After You Sell
If you aren’t 100% positive about your next dream home, there is another option for you to consider, but it involves moving your family twice in a short period of time. You could put your current home on the market and sit tight until it sells. When it does, move your family into short-term rental accommodations. You can sometimes get an apartment lease that’s just six months instead of a year. (It’s very unlikely that you’ll find a house rental with only 6-month terms.) During that rental period, you go out and look for your next home to buy. Since you know when your lease is up, you’ll know exactly what your timeframe is, and you can arrange your closing date accordingly. The downside to this arrangement is that you have to live in an apartment again, which is likely something that isn’t very appealing.
4. Add a Selling Contingency For Replacement Housing
This is the lose nothing option you’ve been waiting for. When you find a buyer for your current home, have your real estate agent add a contingency that you will only sell the home on the agreed upon terms if you are able to find suitable replacement housing. Once you have the buyer agree to the terms, you have them lined up and under contract until you find your next home. Now you can feel free to sell your current home and buy your next home, or even close on both transactions concurrently. There’s little downside to this option, except that you do have to have a buyer who will agree to the terms.
The fact is, there’s no one solution for how to buy a home without getting stuck with two homes that will work for everyone. The ideal solution depends on whether you’re able to gather funds for a down payment, and how you want to handle dealing with your current mortgage. But the good news is that there is a solution. You just need to be creative and flexible. Keep in mind that most of these solutions require the services of a competent and savvy San Diego real estate agent to ensure you’re covered legally and financially.