Monday, April 25, 2011

Purchase before selling

A common dilemma  for many buyers who are actively looking for a new place to live is that they already own a property and they need the proceeds of the sale of their current home in order to be able to do it. Sure, they may have the 10%-20% to put in escrow but not enough cash to be able to take a mortgage that has a payment they are comfortable with.  There are a few solutions for this:

1.  Even in this environment, if you only have 10% to put down, you can get a mortgage.  Banks and the mortgage insurance companies are still writing paper at 90% financing.  Be careful though, you will be limited on loan amount, will need a good credit score and the zip code of where the property is might affect the amount that can be financed.

2.  If you buy before you sell, consider taking an interest only loan.  Why?  Because once you do sell your other residence, you are probably going to take a portion of the proceeds and apply it towards your new loan.  With an interest only loan, that principal reduction will cause your monthly payment to go down.  A regular principal and interest loan will not do that.  It will only shorten the term in which it takes you to pay back the loan.

In previous years before the credit crisis, you could show the bank a listing agreement or contarct of sale on your current home and they would discount that debt.  Not anymore.  Aside from only 1 bank, you must qualify carrying both properties.  This of course assumes you buy before selling.

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