Buying a Second Home! Yaay it always sounds too good to be true. It’s never like- you purchase a home and you are bound to stay in the same house for lifetime. There are many reasons because of which people have to shift to a new home. It may be due to the need of a bigger and better home. One may also need to change home when they switch their job to different locations. “A most likely but the most important question which arises here is- buying a new home before selling current one will be better or selling the old one and then buying a new one?”
People generally have three main goals when they need to buy a new home and sell the existing one.
- To get highest possible price for the current house.
- To get/buy a new house at a cheap possible price.
- To get through both the process with less time and effort.
Once the owners decide and prepare themselves to buy a new property. They may be still wondering whether to sell the existing home first and then buy your new one or buy your new house and then sell your current one. so, here are the advantages and disadvantages both-
Advantages of Selling Existing Home before Buying New.
- One of the advantage of selling existing home before buying a new one is- you don’t need to qualify for two mortgages at the same time. This decreases your pressure.
- When you first sell the existing home you have more money in hand to put it for your new home. You can pay a major part in the down payment itself.
- Since you have already sold your house, you know that how much money you have. So on this basis you can decide that how much you can afford to spend for your new house.
Disadvantages of Selling Existing one before buying the New One.
- Sometimes it may happen that the demand for home outstrips supply of homes available for sale, in this case, one may not be able to find a new home on time.
- It may also happen that one could be left with no home to live in as he/she has already sold the existing house and not getting the new one. In this situation one is forced to move to a rented house for a short duration. This creates an uncertainty and inconvenience for all the family members.
- Real estate market is totally uncertain! It may also happen that the home prices may go up pretty quickly and throw your budget out of balance.
Selling the Home First
However, the logical order is – sell your home first and then buy the new home. By doing this you can know the exact amount that you would have to spend on your new home and how much would you need to borrow as a home loan from the bank. This helps you to take a wise decision according to your finances.
There are homeowners who overestimated the worth of the home in which they were living and purchased a home which was expensive for them, this resulting into draining their finances for the down payment of the new house and borrowing more from the banks as home Loan. But if you sell first you will be less likely to get caught by over-extending yourself on your new home.
However, by selling the existing home first you may be forced to live in a rented house for some time while you are looking for a suitable new home. But this is better than purchasing a home which is expensive to your pocket. As this will end up by paying much more on the loans and consuming all your savings for the down payment.
So, it’s better to estimate and quote a value of your existing property first, then find borrowers for it whether it be through the online websites or through the brokers. Meanwhile when this process is going on, search for the suitable property for yourself. This way you will be having an approximate idea of how much you can get of your property. Meanwhile if you get a buyer for your house sell your house first and shift to a rented house and then buy your suitable new home, don’t rush and hurry up in pressure as you don’t have a home. Take your time and find a home which you always wanted for. Home is a dream to everyone and you can’t afford to ruin your dream by just being in rush.
One of the risks that you may face here is -the extended gap between sale and purchase is that rising property prices. However if you don’t like this idea you can also go with Bridge Home Loans. One more thing which can be done is -invest the equity you receive by selling. It is possible that you may earn a return for the interim period, but this is generally possible for homeowners who have built up a significant amount of equity.
Understanding Bridge Home Loans
Bridge Home Loans are loans which bridge the gap between the selling of an existing home and purchasing of a new one. These loans are temporary loans as they have shorter tenure period. Bridge home loans are always secured by the owners existing property.
Let us understand by an example- Rohit is man who is working in a MNC in Bangalore, he switch his job and got a better job in Hyderabad. Now he wants to sell his house which is in Bangalore and needs to buy a house in Hyderabad. What should he do now? First sell the existing one or first buy the new one? Here he can take help of a bridge loan- Rohit can put his existing property for sell and mean while he can purchase a new home in Hyderabad with the help of bridge Loan. Bridge loan helps provides you money for the down payment of the new home. And he can easily pay this loan back when his property is sold.
But before going to any lender for any Bridge Home loan, Rohit should be clear about the home which they are going to purchase. This is a mandatory thing for a bridge loan. If he is not able to sell his property in 12 months (mostly decided by the lender) then the lenders has the authority to convert his loan to a mortgage
Benefits of a Bridge Home Loan
- Bridge Home Loan helps you buy your new dream home even before selling the existing one.
- The interest payable against this bridge loan is payable after few months.
- The ownership of the new property will remain with the borrower even if he/she is not able to sell the old property.
- The worst thing that can happen is the old property can be taken as a mortgage by the lender.
- It is a short loan with short tenure –means this loan will end up with paying less on the interest.