The current real estate market presents unique problems for the move-up buyer. Experts recommend financing solutions to manage the transition.
Like George and Louise Jefferson from the late-70s sitcom The Jeffersons, most move-up buyers are excited about the opportunity to improve their homes and lifestyles. Unfortunately, the state of today's real estate market makes the moving up process somewhat more difficult than it has been in the past.
A buyer's market
No doubt you've heard that it's a buyer's market out there. Prices are down, property inventory is up, and the time it takes to sell is getting longer. Home sellers are ready to deal with qualified buyers, which is great news if you have plans to purchase property. There's only one problem: If you already own a home that needs to be sold first and plan to ask for a contingency, your offer on that dream home will be significantly less appealing to the seller. In this area, many sellers are not willing to negotiate-they don't want to tie themselves up into an escrow that will fall through if you can't sell your home.
Financing the transition
Experts have some creative financing advice to help move-up buyers get the home they want, without relying on selling the home that they don't want. Homeowners who've experienced rising income since purchasing their first home may actually qualify to carry two mortgages at once. These borrowers should ask their lender for a pre-qualification letter. Such a letter should specifically state that the new home purchase isn't contingent upon the sale of the old home. Presenting this letter with your offer will likely generate a smile and a sigh of relief from the seller.
Qualifying for two mortgages, however, isn't the same thing as making payments on two mortgages. To make things easier, you might consider additional equity financing or a refinance mortgage on the first home. A mortgage refinance will provide for a down payment on the second, and perhaps some extra cash to cover the bills temporarily. If you choose to tap into the equity on your first home with a line of credit, home equity loan, or refinance mortgage, do it before you list the property for sale. Lenders aren't interested in financing a home that's on the market.
Another option is a bridge loan, which provides short-term financing that's usually repaid by a certain date, or upon the occurrence of a specific event. In this case, that event would be the sale of your first home.
Talk with your lender before you start home shopping. If you have good credit, your lender will be motivated to help you develop a financing strategy to make your home purchase go as smoothly as possible.
George and Louise Jefferson moved up "to the deluxe apartment in the sky." You, too, can move on up into that big house on the corner. Just make sure to arrange your financing, and give yourself the best opportunity to close the deal.