Financing in an Ultra Tight Housing Market
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Financing in an Ultra Tight Housing Market

by Jen Novotny | Jun 02, 2021
Image shows family in front of "sold" sign. Article is about how to secure home financing in a tight real estate market 

Economic uncertainty caused by the coronavirus pandemic combined with some of the lowest interest rates in a decade have created a huge demand for new homes and very low inventory.

The lack of inventory is causing some buyers to offer more than asking price and waive home inspections and sale contingencies on existing homes to improve the odds of their offer being accepted.

If you're hoping to buy a new home and also have a home to sell, the timing can be tricky. Selling your existing home first ensures you don’t have a sale contingency and also that you have more money available for your down payment. However, if your existing home closes sooner than you’re able to find and close on a new home, you’ll be stuck without a place to live for a period of weeks or possibly months.

There are several financing options that can help you avoid a home sale contingency and boost your chances of getting an accepted offer on a new home:

  • Bridge loan – A bridge loan is a short-term loan that’s used until you’re able to secure permanent financing. For example, you can use the equity in your current home to assist in buying a new home before finalizing the sale of your current home. A bridge loan literally bridges the gap between buying and selling.
  • Home equity loan – If you have enough equity built in your current home, you may want to take a home equity loan against it to use as your down payment for your new home. When you sell your existing home, you can use the funds to pay off the home equity loan and any remaining balance on your first mortgage.

     

  • Qualify to keep your current home temporarily – Many buyers intend to use the sale of their existing home as their down payment for their new home. However, if you have some money saved for a down payment, you may qualify for a mortgage on your new home while you still have a mortgage on your first home. This may be a wise choice, even if it causes the down payment on your new home to be less than you originally anticipated. After you sell your first home, you can then work with your mortgage company to make a one-time mortgage loan amendment on your new mortgage, which would allow you to use the proceeds from the sale of your first home to put more money towards the principal of your new home. Your mortgage company would then reamortize your loan to reflect the new, lower, loan amount.

All of these financing options help you avoid a home sale contingency which will help make your offer more attractive to sellers, but they also require you to make two payments for a period of time.

It’s important for you to talk with your mortgage lender to discuss your unique financial situation and the pros and cons of each option. Get in touch today!