People who want to sell their current home and buy a new one at the same time often face a dilemma: they find a new home they love before they sell their old one and have to figure out how to cover the cost of two mortgages at once. If you find yourself in this situation, here are some options to consider.
How to Pay for Both Home Loans
If your house has been on the market for months but you haven’t found a buyer, you might have more success renting it out. Renting out your home can provide you with a stream of income to cover your existing mortgage so that you won’t get in over your head when you have to begin making payments on your new home. If you’re considering renting out your home, you can either rent the property for a few months until you receive an offer or find a long-term tenant.
Another option is to use a home equity line of credit to access cash. You may be able to get enough money to cover your new mortgage payments for several months until someone buys your old home. If you don’t find a buyer, however, you run the risk of using up too much of the equity in your old house, not being able to make the HELOC payments, and winding up in foreclosure. You also may not be able to open a home equity line of credit while your house is on the market. This may only be an option if you have an existing HELOC.
A bridge loan can allow you to use equity from your old house to make a down payment on a new property. This can give you flexibility, but you may have to pay a higher interest rate for a bridge loan than for a HELOC. If your old house doesn’t sell, you may struggle to cover the payments.
How to Avoid Winding Up With Two Mortgages at Once
If you would rather not have to deal with this type of stress, you can take steps to avoid having to pay two home loans at the same time. One option is to write a contingency into your purchase contract stating that the deal will only go forward if you sell your current home within a specified period of time. Be aware that many sellers won’t accept those terms.
Another option is to work out an arrangement that will allow the seller of your new home to stay there for a period of time after closing and pay you rent. If the seller hasn’t closed on a new house yet, or wants to have repairs or renovations completed before moving into a new home, a rent-back deal can give both of you more time and help you avoid having to make double mortgage payments.