Current Colorado Homeowner Considerations
The current homeowner who is getting ready to buy (move up homebuyer) has several unique considerations.
Because the mortgage and real estate markets are constantly changing, it is always best to involve your mortgage consultant and Realtor in your discussion before you make any final decisions about if, how and when you'll sell your current home, and how to go about buying your new home. By talking with your team of real estate professionals you will understand the financial and logistical ramifications of your options, enabling you to decide which solution is best for your needs.
What will happen to my current primary residence?
Have you considered turning your current home into an investment property (meaning you rent it)? Or are you committed to selling your current home in conjunction with buying your new home? If you are counting on the equity in your current home for your cash to close for your new home, you may feel that your only option financially speaking, is to sell your home. While this may be true, there may be options for pulling equity out of your home that don't involve selling. These solutions might also mean that keeping your current home as an investment property is an option.
To list for sale, or find a new home first?
From a financing standpoint, a home that is listed for sale may open some financing doors, but it closes others. If you are certain you won't be going the investment property route, there are fewer potential mortgage risks involved with putting your current home up for sale. Once a home is listed for sale, the options for pulling equity are instantly limited.
What are bridge loans and how do they work?
Bridge financing is a second mortgage with the exclusive purpose of pulling equity from a current primary residence that will be sold soon, for the purpose of providing the cash to close for a new primary residence. Bridge financing obligates the borrower to an additional mortgage payment (the bridge loan payment).
From a qualifying standpoint, all three mortgages must be used in establishing debt-to-income ratios. Visit the discussion about how ratios impact qualifying for a mortgage. There may be an exception with conventional financing under very specific circumstances (dependent on the conventional mortgage automated underwriting decision, and a contract on your current home - please talk with your mortgage consultant for more details and to see if this applies to your situation), however, this exception does not limit the buyer/borrower's obligation to make payment on all three mortgages (current home first mortgage, bridge loan, new home first mortgage).
What will I have to make payments on?
It bears repeating: should you be eligible for bridge financing, or able to purchase your new home without selling your current home, you are obligated to make payments on all existing mortgages. Bridge financing does not remove this obligation. Quite the opposite, it creates an additional mortgage obligation.
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