How to Buy a New Home Before Selling Your Old One

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October 1, 2018

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Many people outgrow their homes and find themselves wanting something a bit bigger. And we understand trying to buy and sell your home at the same time can feel like a juggling act; you can’t sell your current home until the new home is ready, but you have to figure out a way to finance the new home purchase.

That’s why we’ve put together this list of common problems people have when they’re trying to buy and sell a home a the same time along with the best solutions. We’re sure you’ll see the process isn’t quite as hard as you thought!

How to Buy a New Home Before Selling Your Old One HELOC Image

Problem: You Need a Down Payment for Your New Construction Home

You’re ready to buy a brand new Edmonton home, but you still need to save for a down payment. All of your money is tied up in the equity of your current home. At the same time, you know it can take as much as a year before you will be able to move into your new home, and you don’t want your family to be in limbo during that time. 

The answer to this problem could be a home equity loan or a home equity line of credit (HELOC). Most lenders will allow you to borrow up to 95 per cent of the equity in your home, minus the amount you still owe. For instance, if your home is worth $200,000 and you still owe $50,000, you could likely borrow up to $140,000. You’ll have to make payments on this loan while your new home is being built, but you can pay the balance off in a lump sum once you’re able to sell.

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Problem: You Need a Down Payment for a Quick Possession Home

Quick possession homes are brand-new homes that are move-in ready or will be ready in a few months. You don’t have to wait as long before you’re able to take possession. This shorter move-in time may mean a bridge loan is the solution you’re looking for.

Bridge loans are intended to “bridge” the time between selling your home and actually receiving the money on closing day. You would sell your home, take out a bridge loan to purchase the new home, and then pay off the bridge loan when you close on the current home.

Bridge loans have a short-term – usually 90 days or less – so this method works best for those who don’t have to wait for a home to be built.

Problem: You Don’t Have Much Equity in Your Current Home

Home equity loans are a great solution for those who have a lot of equity, but if you’ve only been living in your current home for a few years, you may not have enough equity in the home to borrow for your down payment. If you have good credit, though, you may be able to take out an unsecured loan for the down payment based on your credit score and income level. 

Unsecured loans tend to have higher interest rates, so you want to be sure you’ll be able to sell your home for an amount that allows you to pay off this loan. It’s not a great solution, but it works for those who are in a financial pinch.

Problem: You’re in the Middle of Your Mortgage Term

Some mortgages will charge you a fee when you try to pay them off early. For this reason, you may want to look into mortgage portability. It’s possible you’ll be able to “port” your mortgage over to a new home. The current balance will remain at the same interest rate, and the mortgage lender will add in the extra cost of your new home at current interest rates.

While buying and selling at the same time can seem like tricky business, fortunately, there are plenty of options! Talk to one of our preferred lenders to see which method is the best choice for your family – we’d be happy to help!

List and Sell with Sterling Homes

If you are looking to purchase a home with Sterling Homes Edmonton, the List and Sell for Free program entitles you to have us pay the listing and selling commissions on your current home.  Depending on the value of your existing home, this could be worth over $20,000 in savings to you. Count on the expertise of real estate professionals when you have questions, want tips, or need sales coaching.

Click here for your free guide to getting the perfect home! 

Photo credits: piggy bankbridge loanHELOC




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