Have any equity in your home?
Is it enough to put 20% on the new home you desire? Why not get a home equity line of credit (HELOC?) These rarely have any cost.
You extract this line of credit, all or part, and utilize for the down payment and closing costs for the new home. Once your home sells, your first mortgage is paid (off if any balance), along with the HELOC and you walk away with the remaining proceeds. You nailed it with the 20% or more down, avoided any PMI, and took advantage of the interest rate while they remain low, We have a solid plan here.
Say you have a current 15-year mortgage on a home. Yes, your payment is a bit steep. Especially if you want to buy a new home first then sell the current home. How about getting an equity loan. Not only pull enough to put a down payment on the new home, but enough to have this HELOC take first lien position.
We not only pull enough equity to pay off the 15-year mortgage. So now your 15-year mortgage payment is gone and we have enough for the down payment on the new home. The payment on this entire new 1st lien HELOC is much lower than the original 15-year mortgage. This really frees up cash flow as we transcend into this buy first, then sell later strategy.
Absolutely rock-solid strategy that works almost too well.
Caution: If a home is currently listed, no bank will allow you to extract an equity loan or HELOC. If this strategy is used, we must first execute the HELOC prior to listing the home. More reason to make the plan first, then execute with precision.
Own a second home or investment property?
Those who own investment or second homes may be able to extract equity to buy a new home. Yes, if you have one of these types of properties and have equity, we may be able to conduct a cash-out refinance and get cash in hand. These are both great strategies!
If you are selling a home and not netting the expected 20% down, proper planning is in order. At times one strategy may lower the selling price on your current home. Many sellers do not want to do this as they think they need the proceeds to buy a new home. Price drops, in many cases, allows one to move forward quickly and in the long run, make more economical sense.
If we hold out for a few more thousand dollars, it may cost tens of thousands later. HELOC’s allow a seller to hold out on a potentially higher price while moving on with objectives. Without a HELOC in place, a very important tool from the toolbox for the Craftsman is missing. That Craftsman being you.