It can be a difficult task to decide whether you should buy or sell your house first. In this article, we’ll answer the question: can I buy a house before selling my old one in Milwaukee. Can you go through the entire purchasing process before you list your old home?
There are lots of options available these days, and this process is different from buying and selling simultaneously. This option demands an ample amount of financial flexibility as well.
Benefits Of Buying A Home Before Selling Your Old One
A much less common route, buying before selling has its advantages if you can easily afford it. Let us look at some of its benefits:
1. Time To Find The Right Home
When you buy your next house first, it gives you a lot of time, and you can focus on one deal and transactions at a time. You don’t have to rush through the process of finding a place, putting down an offer, trying to close the deal, and competing with other buyers. You can take the time you need to find a house that suits all your needs.
2. Time To Remodel The New Home
Now that you have a new place, you can let your inner interior designer take over control and customize or remodel the new home. You can simply live in your old house while the construction work finishes. You won’t be in any hurry to move out, and you can even focus on selling the old house in the meantime.
3. Opportunity To Stage Your Current Home
As you already have a new home, you can prepare your old one and stage it for listing. Once you list the house on the market, you can let the realtor take complete control, have people coming in to see the house round the clock, and make renovations.
Staging the house includes adding some decor and furniture, upgrading some appliances, painting, and making repairs. It is basically doing everything that can help you sell your house faster and at a better price.
4. Avoid Purchasing With A Contingent Offer
As you are buying the house before putting your old one on the market, the two transactions can be treated completely differently, and you will own both the properties simultaneously for some time. This will help you avoid the contingent offer completely.
This tells the seller that you are only able to buy their homes if yours sells before. When the market is competitive, sellers prefer buyers who have no contingency as it is less risky. The seller is bound to favor a less complicated quick deal.
5. Avoid Additional Interim Costs
Since you will have a new place before you get rid of your old one, you don’t have to find additional temporary housing, storage areas, moving costs, rentals, or even hotels. You can directly move from your old home to your new one.
Is Buying A New House Before Selling The Old One Cost-Effective?
When thinking about buying a second home, see if you can even afford another mortgage and what kind of market is going on. If it is a seller’s market, it should be a cost-effective solution to buy a new house as compared to a buyers market. In the seller’s market, the houses sell very quickly.
Also, consider your finances and your savings. You should see how you plan to finance another house with your income.
Qualifying For An Additional Mortgage
Before proceeding further, you need to make sure that you qualify for a new mortgage. When you apply for a second or even a third mortgage, the lending service will calculate the debt-to-income ratio, which is your total debt divided by your monthly income.
Many lenders set the limit at 43% that you can only qualify if your ratio is 43 or below. If you already have a mortgage, its monthly payment is added to your ratio, which will lower your chances of getting another loan.
Ways to Fund The Down Payment on the House
Since you wish to buy the house first, you need to figure out the source of your down payment. Loan standards dictate that you need to put down 10% of the total sale price of the house as your down payment, and it might sometimes even go up to 20%.
Let us look at some common creative ways that people use to fund the down payments of their second houses:
1. Retirement Funds
You can sometimes take a direct loan against your 401k. IRS has imposed certain restrictions on this type of borrowing. The maximum amount that you can take is the greater of 50% or $10,000 or 50% of your invested balance. The loan amount can also not be above $50,000. Due to the restrictions, you should always consult your financial advisor and tax professional.
2. Cash-Out Refinance
In this option, you can refinance your own home into a brand new loan, but you need to lend more money than you currently owe. This lets you withdraw some equity that you previously accrued without needing to sell your house.
Similar to any refinance, this method can also add heavily to your closing costs. Therefore this path might only be relevant if the amount you borrow is worth covering all the extra fees.
3. Home Equity Line Of Credit (HELOC)
The home equity line of credit is secured by the net equity on your house and is a revolving credit line. You may not be eligible for this method if you have already put your house on the market. You should also keep an eye on the fees in this method.
The house selling and buying process is almost the same. It only depends on the option that suits you better in terms of risks and finances. The risk is often calculated by studying the market closely. Can I buy a house before selling my old one in Milwaukee? Yes, indeed, but with proper guidance and some handy tips mentioned above!