By Mike Miles
You probably think I’m talking about tax season? Nope. While that’s timely too (and I’ll probably post about it in the next few weeks), I’m writing about the spring buying season. It’s been competitive the past few years and all signs point to it being the same this year. There are several things you (as a potential homebuyer) can do to prepare. Today’s post is about two ways to buy non-contingent (for those that currently own homes).
Buying a home with a contingent offer is not likely. A contingent offer is when you make an offer to buy a house if the house you currently own sells before you buy. The reason this isn’t viewed favorably is that most sellers don’t want to wait that long for a potential buyer’s home to sell.
The tough part is that buyers don’t want the stress of having to time the market perfectly by selling their home within the same timeframe of finding an ideal new house. Timing is challenging any and especially more so in a competitive and fast-moving real estate market.
So, what can be done? There are a few options. I’ll discuss two of them and will slightly discard a third. Let’s discard first. Most people think a bridge loan is the best answer but in most cases it’s not. The reasons are that it’s expensive and qualifying for those is no different than what’s required for the other two options.
Good option #1: Re-cast loan
This loan requires a buyer to put the minimum down on a new house (3 or 5 percent) and qualify with a new payment plus the current homes’ payment (same requirements as a bridge loan). Once the current home sells, the buyer can use the equity/sale proceeds and apply it as a principle reduction on the loan for the new house. The reduced balanced is re-casted/re-amortized so the payment reduces accordingly.
Good option #2: Use two loans
This option is like the re-cast option in terms of requiring a buyer to put the same minimum down and being able to carry payments on both homes (new and current). The difference … instead of doing one re-cast loan, a buyer would do two loans. The first loan would be the balance they ideally would borrow if they had the current home was already sold. The second loan would be the balance that would be paid off with the equity/sale proceeds once the current home sells.
This is a very simplistic overview of both these options. Both deserve much more context and I encourage any reader (that may be in this situation) to connect with our office to learn more. Being prepared in this market will make a huge difference in your buying power/timing.
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268