In a hot real estate market, making a strong offer to purchase is the key to success. If you include a contingency to sell, it can be enough to prevent you from obtaining an accepted offer. Because there are a limited number of properties available this spring, we encourage our buyers to do everything they can to avoid having a sale contingency on their offer.
Karen Wedvick, of Johnson Bank, offers a few suggestions to help buyers have a good offer ready, without selling first.
1. Get a Home Equity Line of Credit BEFORE you List your Home. A line of credit allows you to use your home equity to work for you, including the option to use it for a down payment. This option can be appealing, because it typically allows you to access 90% of your current equity, and you pay only the interest on the amount you draw. Interest rates on these loans are typically lower than other similar options. BUT- you won't be eligible for a home equity line if you have already listed your home. You should secure this loan before you list it.
2. Consider making the Minimum Down Payment. Since mortgage rates often have the lowest interest of any loan option, it might be most affordable to keep your current mortgage, and buy the new home with a minimum down payment. Then, when you sell your first home, Johnson Bank will allow you to put the rest of your equity down on the new home, and will recalculate your monthly payments at no additional cost. A minimum down payment is often 5% of the cost of the property you are purchasing. Perhaps you have this money in savings, are able to obtain a gift, or can borrow from a 401k in order to make this happen.
3. Look at a Bridge Loan. A bridge loan can work a few different ways in order to help you buy before selling. It can provide the funds needed to pay off your existing mortgage, and provide the down payment in advance with one loan. A bridge loan can also be used to fund the down payment in the form of a second mortgage. Bridge loans are generally at a higher interest rate, and don't necessarily remove your payment on the first home. They are useful for accessing a down payment before your first home sells. This option can make a purchase possible, but it isn't available to all buyers. When the lender determines eligibility, they look at your entire debt, and base this loan off of the total picture. A bridge loan will typically be calculated on 80% of your first home's current value. Bridge loans are removed after the first home is sold.
Wedvick advises her customers to consider all their options before choosing one. "Buying a home can be such an emotional decision. I'm here to make sure you've thought through the process and are comfortable with the decisions you make over the long haul," she says. You can contact Karen Wedvick at Johnson Bank by phone at 608-203-3934 or by email at kwedvick@johnsonbank.com.
NMLS ID: 770831
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Loans are subject to credit and property approval, bank underwriting guidelines, and may not be available in all states. Other loan programs and pricing may be available. Certain conditions, terms, and restrictions may apply based on the loan program selected. Property insurance is required; if the collateral is determined to be in an area having special flood hazards, flood insurance will be required. Private mortgage insurance required on loans with less than 20% down.
