As a homeowner who's thinking of making a move, it's natural to wonder about how to buy a house before selling yours. Traditionally, a lot needs to go right for this to happen seamlessly, and for many, they’ll need to sell their old house before thinking about buying a new one.
The real estate industry is changing, however, and there are new ways to go about buying a house before selling, or conducting both processes simultaneously.
Home equity line of credit
A home equity line of credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loansuch as credit cards.
You would be borrowing against the available equity in your home and the house is used as collateral for the line of credit. As you repay your outstanding balance, the amount of available credit is replenished – much like a credit card. This means you can borrow against it again if you need to, and you can borrow as little or as much as you need throughout your draw period (typically 10 years) up to the credit limit you establish at closing.
Bridge Loan
A bridge loan is a form of short-term financing that can serve as a source of funding and capital until a person or company secures permanent financing or removes an existing debt obligation. Bridge loans (also known as swing loans) are typically short-term in nature, lasting on average from 6 months up to 1 year, and are often used in real estate transactions. They can be used as a means through which to finance the purchase of a new home before selling your existing residence.
Low-down-payment mortgage
One option is to get a low-down-payment conventional mortgage to purchase your next home. Then when the sale of the old house closes, apply the proceeds toward your new home and get your mortgage recast.
What is a mortgage recast?
When a lender recalculates the monthly payments of your current loan based on the outstanding balance and remaining term. When you purchase a home, your lender calculates your mortgage payments based on the principal balance and the loan term. Every time you make a payment, your balance goes down.
