Your Mortgage: Buying before selling – what you need to know

Mike Miles

By Mike Miles

It happens frequently- someone wants to buy a new home but the house they currently own and live in hasn’t sold. Perhaps it’s not even listed for sale yet. Timing means a lot, especially in a competitive market, so it’s sometimes challenging to find your ideal new home at the same time your current home is under contract. Likewise, buyers having success with contingency offers is rare in a seller’s market.

So what do you do if you’re handcuffed by timing? One option is to sell your house before you begin a new home search and take up temporary residence somewhere. We often see people live with their parents for a time when they go this route, but moving back isn’t necessarily the most ideal for parents or their kids, so here’s a better option: buy before you sell.

Risky? Not really. Remember- your home being in good condition and priced appropriately equates to a much easier process in a seller’s market. It all really breaks down to a simple case of supply (quality supply, that is) and demand. That being said, you also have time on your side. Buying a new home normally has a 30 to 45-day contract period from offer to close, so there’s normally about 30 days or more before a new payment starts. If you add both time periods together, there’s about a 75-day period from contract to the first payment due date. So if all things are average on both the sale and purchase of a home, you could likely sell before your first payment is due on a new house.

Qualifying also needs to be considered since you’ll need to document being able to cover both house payments and meet lending guidelines within debt-to-income ratios. You also need to document having the required down payment amount for the new purchase, but as long as the equity available from your house to be sold isn’t being utilized for that you won’t be prevented from buying before selling. That being said, it’s common for homeowners to have the desire to use the equity gained on a sale to make a substantial down payment on a new home, a move typical when targeting a specific loan and/or payment amount to avoid mortgage insurance.

Likewise, recasting your loan after you have the proceeds from your sale to apply to the loan you obtained is an option. Not many lending institutions allow this because they’d prefer you refinance instead, a costly and unneeded step. Fountain Mortgage allows buyers to apply a lump sum of money to the loan after closing and have the payment recast (or re-amortized) based upon the original terms. It’s the same in essence as if you sold your home before you purchased a new one, minus the stress of timing. As an added bonus, time is on your side, so you can take your time moving and be better prepared to stage your home correctly so it presents well when showcased.

2020 is going to be active and competitive, so I encourage you to call my team or myself before selling. Doing so could dramatically reduce both your stress and your perception of the risk attached to such a move.

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 Mortgage today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268