Gustan Cho The Mortgage Expert,
Publish On: December 4, 2022
In this blog, we will discuss and cover buying and selling a home at the same time without stress. A home is most people’s largest investment in their lifetime. Buying or selling a home is not like buying or selling high-ticket merchandise. Just buying or selling a home can be stressful. However, how about buying and selling a home at the same time?
Buying and selling a home at the same time without stress can be done if it is properly planned ahead of time. Some home buyers currently own a home and are in a dilemma about buying and selling a home simultaneously. Homeowners are either downsizing due to being empty nesters or needing in buying and selling a home at the same time. Or homeowners are upgrading to a larger home. This is because of their growing family.
Putting an Offer on a House Before Selling Yours
Buying a home and selling a current home at the same time can be done without stress. Each case scenario is different. Just buying or selling a home at a separate time can be stressful if not prepared.
There are certain steps professionals advise when buying and selling a home at the same time. If you are selling your house and moving to the same area, you can use the listing agent as the buying agent to avoid one more person to deal with. Simplifying one real estate agent will avoid stress.
Can I Buy Another House Before Selling Mine?
For those selling their home and moving to a distant area or even out of state, you need to coordinate the move with a separate real estate agent. These dual transaction borrowers often need advice on buying and selling a home at the same time.
They are often in a dilemma on what to do. Do I sell first and buy a new home? Or do I sell my home first and buy a new home? What do I do during the transitional period? In this article, we will cover and discuss selling and buying a home at the same time.
How Do You Sell a House and Buy a New One at The Same Time?
Purchasing and selling a home at the same time is not as easy as it may seem. It is not a matter of finding a solution to buying and selling a home at the same time. But it may also affect the mortgage loan approval process.
The borrower must qualify for both mortgages if the first home is not sold when the buyer buys their new home. Every solution to selling your home and buying a new one at the same time is different.
How Do You Coordinate To Sell One House and Buy Another?
Here is a general step-by-step strategy for buying and selling a home at the same time:
- Get qualified for a home mortgage with a rock-solid pre-approval from an experienced loan officer who has experience in representing borrowers in dual buy/sell transactions
- See if your loan officer has a bridge loan program if you do not sell your house before closing on your purchase
- Weigh your mortgage options on whether you can qualify for both mortgages with your loan officer
- See if you can get a HELOC in the event you need the down payment and closing costs on a new purchase prior t closing on your current home.
- Prepare your current home you want to sell, presentable and ready to list.
- Shop for a home
- Once presenting a real estate offer contract, see if the sellers agree with the contingent on selling your current home.
- Offers with a contingency on selling your current home may be difficult in a seller’s market.
Strategies For Buying and Selling a Home at The Same Time
For homeowners who currently own a home and are planning on buying and selling a home at the same time, there are certain strategies they can utilize where it may work. Buyers can buy a new home without selling or closing on an existing one. If homeowners do not intend to sell a current home, they need to qualify for both mortgages.
Can I Afford To Keep My House and Buy Another?
You can keep your current house as a rental home and buy another house as a primary home. If you plan to keep both homes, you must make sure you qualify for both mortgages.
The loan officer needs to ensure borrowers qualify and meet the debt-to-income ratio requirement with the current home plus the new one they are buying. One question we often ask is how about if the homeowners get a tenant to rent the house they are moving out of? There are rules on rental income that can be used on a home if a homeowner is just moving out and buying a new home.
Can I Buy A House Before I Sell My Current Home?
The answer to whether I can buy a house before selling my current home is YES. However, the key question is, do you qualify for both mortgages? Need to meet the debt-to-income ratio requirement of current mortgage payment PLUS proposed home purchase.
Debt-to-income ratios are calculated by adding the minimum monthly debt payments, including current and new proposed housing payments. Then divide it by monthly gross income.
What Home Loan is Best When I Am Buying And Selling House at The Same Time?
FHA DTI Requirements are 56.9% DTI back end and 46.9% DTI front end with credit scores of 620 or higher. If credit scores are below 620 FICO, FHA caps debt to income ratio at 43% DTI to get an AUS Approval. There are no front-end debt-to-income ratio requirements if credit scores are under 620 FICO.
If Lender says otherwise, requiring a front-end debt-to-income ratio requirement if credit scores are under 620 is not a HUD requirement but a lender overlay. Try consulting with another lender with no overlays. Fannie Mae has a debt-to-income ratio requirement of 50% DTI. Freddie Mac will go up to a 50% DTI cap. VA loans do not have a debt to income ratio requirements. USDA will cap debt-to-income ratio requirements at 41% DTI. Once borrowers qualify and meet the debt-to-income ratio requirements, they must determine if they meet the owner-occupied primary residence requirement.
What Defines Owner-Occupied Home?
Homeowners buying and selling a home at the same time need to consider whether or not the new home purchase meets an owner-occupied primary home purchase requirement.
Lenders are very cautious if borrowers buy a second home and exiting an existing home. This is because they want to ensure that the second home they buy will be an owner-occupied home and NOT AN INVESTMENT HOME.
What Is The Difference Between Second Home Versus Investment Home Financing?
Here is how lenders will believe that the second home buyers are buying is a primary home and not a second home:
- If the second property nearby the exiting property
- If it is the same size and commuting distance, it will not work
For example, here is a case scenario:
- if you are a homeowner of a 2,000-square feet ranch home
- are buying a second 2,000 square feet ranch home 30 minutes away
- the lender will not believe that you are buying the second home as an owner-occupied primary residence
Owner-Occupied Home Loan Requirements
If you are buying a second home that is 30% or larger than the exiting home, that will make sense. A letter of explanation will be required. A growing family will be a great letter of explanation. Other reasons can be exiting a condominium or town home and purchasing a single-family home.
The flip side will work. If you are downsizing because your children have left home. Are you moving from a larger single-family home to a townhome, condominium, or substantially smaller home? That would make sense. Lenders are very strict with home buyers buying and selling a home at the same time. This is because owner-occupied primary residence mortgages require the lowest down payment and mortgage rates.
How To Rent Your Current Home and Buy Another
Borrowers with higher debt-to-income ratios and cannot qualify for a mortgage buying and selling a home at the same time may have another option if they currently have equity in their home or can pay down their current mortgage balance to have 75% LTV. Here is how this mortgage guideline works:
- If a current homeowner is buying and selling a home at the same time but cannot qualify for both mortgages, the borrower can use potential rental income on the property he is not selling
- This can be done if he or she has at least 25% equity in their home
- If they do not have 25% equity, they can get an appraisal
- The appraisal needs to be ordered by the lender
- If there is not enough equity, homeowners need to pay down the mortgage balance to 75% Loan To Value
- If the property they are moving out of has at least 25% equity, they can use 75% of the potential rental income as part of their qualified income.
- The appraiser determines the potential rental income
Borrowers with any questions on other creative ways of qualifying for a mortgage when buying and selling a home at the same time, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
