Every person at some point in their lives may feel the urge to go for an upgrade. It is hard to resist the temptation of living in a bigger house or a better neighborhood. Unfortunately, money plays an important role in the moving decision. The best option is to sell your old house to be able to afford a new one. However, the home you have in mind may be more expensive than your current one or the time of selling and buying won’t align together. We will provide you with some tips to help you come up with a solution to these financial issues.
Buying a new house without knowing for sure that your current one will be sold is a huge risk. It is better to sell your place and buy another one at the same time without touching the money in your bank. This can be done by including a contingency clause in the offer you submit to your seller. This means that if your old house is not sold in a certain timeframe, you can back out on the deal without losing a penny.
Sellers may not agree, but with enough persuasion at a time when the market is slow, they may end up considering it. However, you will need to move in before the deadline, or you will risk paying the penalty in the contract. It is a good option because you won’t have to go through storing your belongings in storage units and keep moving around until you find a proper place after selling your old one.
Home Equity Loan
A home equity loan is another viable option if you cannot align the date of selling and buying both houses. You can use the equity in your home as collateral in case you fail to pay your debt. When your house is well-structured, you can request a bigger loan. However, you should keep in mind that you may risk losing the house completely if you can’t pay up on time. The beauty of this type of loan is that your credit history is irrelevant to the whole process.
If you know that you will be able to pay your debt fast enough, you can go for a line of credit loan. This is because the interest rates are variable according to the market, so make sure to pay your debt before the price is too high for you. You won’t receive the total amount upfront, but you will have an account that you can borrow from when you need it. This is beneficial for those who plan to buy a property through an installment plan.
Sometimes home equity loans don’t work out according to plan if your property is not worth much. Another loan that can help you finance your new place is a bridge loan, however, it has high-interest rates. It can be used to pay the down payment on your target house and bridge the financial gap between the old and the new property. The loan should be repaid as soon as you sell your other home. Most people get the loan and put their house up for sale when they find a new place to purchase. They do this to close the bridge loan as fast as possible so they won’t have to pay high interest. Unlike home equity loans, you have to have a good credit history to qualify for a bridge loan.
Another type of loan that is similar to the home equity one is cash-out refinance, as you will be using the equity in your house to get some cash. If you have an existing mortgage, this loan will pay it and help you start a new one. It has better interest rates, so you will have some time to pay up without worrying about the extra cash you will have to add to the total amount of the loan.
A Loan from Your Employer
Opting to take a loan from your employer is a viable option because they can simply deduct a specific amount from your salary every month. You should go to your HR department before taking the loan to understand more about the repayment period and interest rate. One of the downsides is that you cannot leave your job even if you find a better opportunity unless you have paid your debt in full.
The best option to buy a new house is to sell the old one at the same time without having to dig into your savings account. It is not hard to get a loan to fund your target property, however, you have to do your research. You should know all about the loan you are getting in terms of the repayment period, interest rates, and collaterals. No matter what option you choose, make sure that you have enough money to pay on time.