Switching Homes – What to avoid
If you’re planning to upgrade your home by selling your old house and buying a new one, you need to be careful about a few aspects. Why? Well, people usually either sell their houses before settling on a new one, or buy a new house while the old one is still on the market.
It’s difficult to time the two perfectly, and paying for upkeep and mortgages on two houses can amount up to significant amounts of money, even if we are speaking about a short time period. In the first case, the problem is that you’ll find yourself without a home and with all your things in boxes, something that might force you to compromise and buy a house you don’t really like just so you can settle down again.
In the second case, you already picked a new house, but your old one isn’t sold just yet. Given how housing markets work today, it can be months before you finalize the deal on your old house, and you will spend top dollar on the costs of owning both houses. This is also problematic if you are buying your new house through a loan, as it’s unlikely that a lender will approve a new loan until your old one is closed and settled and the funds from your old house have been transferred.
So, what can you do to prepare? Let’s take a look!
Evaluating the market
Before even considering moving up, you should get a realistic feel and estimate of the local housing scene. If you’re moving to an entirely new area, you’ll have to appraise both your old area’s market and the new one. In general, some areas have hot real estate markets (meaning that houses sell really fast), while others have cold markets (meaning that sales are slow and hard, and the area is not as desirable for buyers).
Since you’re selling and buying at the same time, ...
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...home. If your own resources are insufficient, it’s best to ask support from family and friends. Let them know that you need a short-term loan that will be returned as soon as the old house sells, and offer them guarantees or a small interest rate if needed. If they can help out, family members will most likely not charge you hefty fees or monthly payments.
As a last resort, you can also go for a bridge loan. Bridge loans are bank loans that are aimed to help you through the transition process. They are generally short-term loans with extremely high interest rates. Use this method as a last option though. Bridge loans are extremely difficult to qualify for (they require you to prove that you can afford paying two mortgages at the same time and usually require a very high credit score), and the interest rates are often so high it’s not even worth considering them.
And for those who are qualified, this can be easily done by using a piggy-back mortgage. What is a piggy-back mortgage you ask? Well, a piggy-back mortgage, also known as a second mortgage, is a loan that 's taken out by a borrower at the same time as he takes out the first mortgage. These types of loans are typically used to lower the loan-to-value ratio (LTV) of a home, which will help a borrower qualify more easily and to eliminate the need for paying PMI. Not having to pay PMI premiums could ultimately save a borrower thousands of dollars on his mortgage. However, you will need to keep in mind that a second mortgage is usually charged a higher interest rate than your first mortgage. Therefore, you should make sure you are able to pay it off as quickly as possible. If you can 't, then you might be better off paying the PMI premiums, because if you can 't pay off your piggy-back loan quickly, it would probably be more cost effective to just go ahead and pay the PMI and drop it once you have reached 20 percent equity in your home. You also need to be careful with piggy-back loans because they can be a bit tricky. Quite often the terms of second mortgage include adjustable rates and they might also have a balloon provision included with them as
If you apply for a personal loan with your current bank, then you will probably get it. They may not offer you very much
Whether you are a first time home buyer or a seasoned home buyer, it is important to be aware of the requirements, policies and procedures that could potentially assist you with your home buying needs. As frequently evidenced, the housing rules keep changing. The government keeps proposing new funding programs and the stipulations that need to be met by buyers are ever changing. Staying abreast on these details will help ensure you have a smooth and valuable home buying experience.
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