Tips to avoid juggling two mortgages
Buying a home can be a stressful process. Throw in having to time it right with selling your current property and the stress level rises. Should you put an offer on a home before you’ve sold your current property? You don’t want to juggle two mortgages if your current property doesn’t sell as quickly as you’d like, but if you wait to sell your property first and you haven’t secured your new home, where will you go?
Stress level: through the roof. Here we’ll help you break down your options and weigh your pros and cons. Just know you’re not alone in this common conundrum, and we can help you make it work.
Learn where your finances stand
Right off the bat, get a comparative market analysis of your home so you have a clear picture of what to expect. Think worst-case scenario here and know what you’ll do if you have to take an offer that’s less than you hoped for.
To qualify for your new mortgage, your income will have to be high enough so that you don’t push your debt-to-income (DTI) level over the edge. If the second mortgage makes this ratio too high (and you don’t have a contingency stipulation in there), you won’t get approved for your loan.
You’ll also want to get a mortgage pre-approval. This can make you a more competitive buyer from the start, as well as solidify the price range of your home search.
If you go the ‘sell it first’ route…
You’ll know exactly how much you’re working with when you set out to find your new home and you won’t have to deal with paying two mortgages. If you need the money from the sale of your old home to buy your new home, or you know you can’t afford two mortgages for any length of time, this could be the way to go.
But what if you have to be out of your old home before you find a new one? Ask yourself this: would you consider renting and possibly putting some of your things in storage? This would allow you to take your time while you search for your perfect home. You’ll just want to factor in the cost of moving twice, and any extra storage fees.
If you don’t see yourself renting, there is the option to consider a contingency offer—meaning your offer is dependent on the sale of your home. It sounds ideal, but oftentimes another buyer swoops in with no contingency clause and boom—the sale is theirs. This can be so frustrating because by the time you put an offer on a home, it’s likely you’ve already fallen in love with it, not to mention you’ve already invested time and money into inspections and appraisal fees that won’t be refunded.
If you go the ‘buy it now’ route…
You have a couple of options. The first is to sell your home quickly. You’ll want to price it aggressively and leave your emotions at the door. Don’t let your hopes of what you thought you might sell it for when you bought it, or its emotional value, cloud your judgement.
This comes into play with your agent’s staging advice as well. Even though you can’t imagine why anyone wouldn’t be immediately charmed by your eclectic taste, try to listen to their suggestions. It’s hard—this is where you built your life’s memories, but the buyer won’t care. Your agent’s advice isn’t coming from personal taste, it’s coming from research.
The second option is to rent your old home once you move into your new home. You can use the money to cover the mortgage, any homeowner association fees and real estate taxes. This can be a great choice if you have to relocate fast and you’re not sure how long your home will take to sell.
Taking advantage of a sale contingency
A sale contingency is a contract term stipulating that, as the buyer, you need to sell your home first before you can close on your new home. No sale, no agreement.
Even better, with those added funds from the home sale, you can afford to spend more on a new house. And that means you could have more flexibility to outbid other buyers when you find your dream home.
There is a catch, though—sale contingencies aren’t all that common. A May 2020 National Association of Realtors report found that sale contingencies only accounted for 6% of all contract settlements. As such, you could find yourself at a competitive disadvantage compared with offers that don’t include any extra contingencies.
It’s always a good idea to consult a real estate agent before deciding on using a sale contingency. Sale contingencies are ideally suited for a buyer’s market where you hold more negotiating power over the seller.
The mortgage-juggle struggle is real
There are pros and cons to both sides, so all you can do is consider which pros outweigh which cons for you and your family. Having a plan in place can make a world of difference. You can get started by talking to one of our loan experts. Time and again they find solutions for their clients with our smooth, transparent home loan process. Start uncovering your most harmonious home-selling and buying options today.