RE/MAX Executive Realty



Posted by RE/MAX Executive Realty on 5/17/2020

Photo by Paul Brennan via Pixabay

If you’ve been renting and preparing to buy a new home, you’ve probably saved up your down payment and are in the process of getting pre-approved for your mortgage loan. If, on the other hand, you’ve been living in a home you own and paying on your mortgage, you may be ready to buy, but only if you can use the equity in your existing property. Logically, that would mean you have to sell your home first, which pays off your existing mortgage, then live somewhere temporarily while you shop for your new home. However, you have more options, and none of them require you to live in a third location.

Option 1: Contingent Purchase

Ask your real estate agent for in-depth information on contingent purchases in your area, since different cities and states can have conflicting rules. This means making an offer on a new home that is “contingent” on your accepting an offer on your current home. Basically, you will do the buying and selling parts of your real estate plan at the same time. While your agent is looking for new homes, they are also showing your home to buyers. You can use the same agent for both parts of the process, which is often cheaper, or you can use a buyers’ agent for the purchase and a sellers’ agent for the sale, which may help you get better deals. Not all sellers are willing to entertain contingent offers since that can put a crimp in their own moving plans, so make sure your agent is aware of your circumstances from the beginning.

Option 2: HELOC Loan

Home equity line of credit or HELOC is a particular type of home loan. These loans are usually second mortgages of some sort but allow you to withdraw the entire amount within a given time period. This means you can keep your current home, and use the HELOC loan to buy your new home. Then, when your current home sells, pay off the mortgage on that home, and get a new mortgage on your new home to pay of the HELOC loan as well. This can be risky, however, since HELOC loans are based on the equity value of your current home, which may not be as high as the market value. In addition, they can have variable interest rates, which, if your old home ends up not selling for an extended period of time, can really start to drain your savings. If you plan to go with this option, make sure your real estate agent knows the timelines you’re working with, and try to find an agent with a “sellers’ guarantee.”

Option 3: Contingent or Rent-Back Sale

A contingent sale is similar to a contingent purchase, but instead of closing relying on you finding a buyer, it relies on you finding a new home and that offer being accepted. These tend to be shorter-term agreements, such as 1 to 2 weeks, but can be longer, even up to several months, depending on your buyer. Be careful and try to have contingencies on only one side of your purchase, since if you end up with too many chained together (you are on contingency, as are your buyers, and their buyers and so on) if one person’s plan doesn’t work, the whole chain could fall through. Alternatively, if your buyer has a longer moving timeline, they might be interested in setting up a “rent-back” agreement. This allows you to sell your home and then rent it back from the new buyers for either a specific time period or for as long as it takes for you to find a new home. This is especially a good idea if your buyers are currently renters on a month-to-month agreement since both of you can move whenever is needed.

If you’re ready to buy a new home, but are worried about selling your current one first in order to afford it, you are not alone. Make sure you explain your situation to your real estate agent during your very first meeting. Once they know what kind of agreements will work for you, they can do a much better job of finding your dream home and helping you complete the purchase.




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Posted by RE/MAX Executive Realty on 11/12/2017

No homeowner wants to borrow more money. However, if you’re experiencing hard financial times or looking for a way to fund a home improvement project, there are ways to borrow money with your home as collateral.

In this article, we’re going to talk about home equity loans and home equity lines of credit (HELOC). We’ll explain how they differ and break down their benefits and risks.

Before the bubble

Before the financial crisis of 2007-2008, many homeowners were borrowing readily based on the equity of their home. Interest rates were low on home equity loans, encouraging homeowners to leverage their portion of homeownership.

During the recession, however, all of that changed. People owed more money on their mortgages than their homes were worth, and banks became reluctant to lend.

In recent, years, however, house prices have been creeping back up, and banks and homeowners alike have gained confidence in the equity of their home.

As a result, a growing number of homeowners are turning back to home equity loans and lines of credit as a source of low-interest financing.

So, what exactly are these loans and credit lines?

The difference between a home equity loan and a line of credit

A home equity loan is a lump sum of money that you borrow which is secured by the value of your home. Typically, home equity loans are borrowed at a fixed rate. Lenders take into consideration the amount of equity you have in your home, your credit history, and your verifiable income.

A home equity line of credit (HELOC) is a bit different. Like a credit card, you are able to borrow money as you need it via a credit card or checks. HELOCs often have variable interest rates, which means even if you’re approved for an initial low rate it could be increased. As a result, HELOCs are better suited for borrowers who can withstand a higher leverage of risk and variation each month.

Is now a good time to borrow?

If you’re a homeowner, there’s an understandable temptation to use the equity you’ve built over the years to your advantage. In some cases, home equity loans and HELOCs can earn you better interest rates than other forms of borrowing.

However, as with other loan types, it’s important for homeowners to realize that HELOCs and home equity loans are not the same as having cash in your savings account.

Another danger that borrowers face is the potential for foreclosure if things go badly. While most lenders won’t seek foreclosure after a few missed payments, your home has been put up as collateral for repaying the loan. Most lenders will choose to sell a defaulted loan to a collections company rather than seek foreclosure.

Ultimately, the best course of action is to avoid borrowing unless it will help you out financially in the long term. However, for those with high home equity who may, for one reason or another, need to borrow, a home equity loan or line of credit might be the best choice.







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