The reality of the current real estate market is that lots of people cannot afford one home, let alone 2 at the same time. While home equity is at a historical high, not everyone is sitting on enough cash or income to be able to justify 2 home payments. So, what's your options if you want to upgrade? Well, you could surely sell your current home and purchase a new one. But there is a lot of risk involved and plans in real estate don't always work the way they're intended. If you're looking to upgrade your lifestyle, downgrade to a smaller home, or simply need to make a move for personal or professional reasons, you have a few options!
Take Out A HELOC:
This route might be the hardest one to take considering today's interest rates. With rates around 7% (and even higher on HELOC's), the numbers may not work out the way they need to in order for this to benefit you. But if you are one of the millions of Americans that are sitting on a lot of home equity, this could be your option!
A HELOC (Home Equity Line of Credit) is basically a loan against the equity you have in your current home. This allows you to take out loans up to 75% of your available equity and do whatever you choose. This can be used for renovations, paying off high interest debt, or today's topic of discussion, buying your next home!!
The best thing to do is talk with a local lender and real estate agent about obtaining a HELOC and what the numbers would look like if you did. Considering real estate has created the most millionaires and is one of the most lucrative investment strategies, the best option you have when taking out a HELOC is to hold on to the home to build more wealth and create cashflow through renting!
Bridge Loans:
Bridge loans are a very creative way for those who are looking to move primary residences. Maybe you want to sell your home and move, but you want to take the route with least risk possible. A Bridge Loan is exactly what it sounds like, a loan that builds a bridge for you from your current home to your next. Most homeowners take this route when they need to find a home before selling their current residence, but don't necessarily have the cash in hand for that next down payment.
If you are dealing with a corporate relocation, job change, moving for personal reasons, this is a great route! This allows you to make moves quickly without worrying about the sale of the home you're leaving in the short term.
The goal of this is to leverage equity in your current home to find your next home quickly, move in, then immediately list the previous home for sale so you can payoff the Bridge loan. This stops you from worrying about timing of buying and selling simultaneously, worrying about deals falling through, moving accommodations, and many other aspects of the transaction that can go wrong during the simultaneous moving process.
Renting/Becoming a Landlord:
This is one of the most used strategies for those who are in need of a move but don't want to sell the home they already have. We have already mentioned how real estate has built wealth for millions of people, and this route allows you almost a "rinse and repeat" ability.
By renting out your current home, not only can you use this rental income to offset your DTI (Debt-to-Income Ratio), but you can also use a portion of the income to count towards qualifying for your next home! If you are wanting to upgrade to a bigger home or a nicer neighborhood, this may be the route for you.
It is worth noting, with this route, you will likely need at very least 5% of the purchase price for a down payment on the next property. This would have to be in cash and verifiable by the bank. Using this strategy, you would not be taking advantage of any equity that you currently have, but you would be building more equity and wealth each time you do this process. There are many investors who start out with this! They will buy their first home with little to no money down, live in it for a few years while they save up, then rent it out. This allows them to create cashflow on that original home, maybe making a few hundred bucks a month, and purchase a nicer or bigger home in the process. These investors will start to rinse and repeat, repeating this process until they have built a huge portfolio of rental properties that supplement their income and at the same time achieved the home of their dreams!
Conclusion:
If you need to buy your next home without selling the one you have first, you have plenty of options! Not every option is for everyone. So the best thing to do is talk to your trust real estate agent and lender to explore options, look at finances, and make educated decisions on your next steps!
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