Mortgages in seller's market

Buying home during a seller’s market can be a bit of a battle, particularly if you own your home and need to sell to purchase a new home.

The question I get asked most often is: Should I buy first or should I sell first?

There is going to be a different answer based on your own situation, so here are some possible financing solutions for you to consider for both of these scenarios.

Buy First — You have found and bought your dream home before you've sold your current home and you are faced with carrying two mortgages for a while – what will you do?

  • Access Equity for Down Payment: You may qualify and be able to afford to carry and own both homes. If the down payment for your new home is tied up in the equity in your existing home, then there are options to get access to that right away. A home equity line of credit, which has no penalties for paying it off, can be arranged to access your equity in your current home for the down payment. The payments are interest only so while you own two homes at once, the payments are low. Once you have sold your existing home you can then pay off the line of credit you used for the down payment in full. 
  • Rent: You could consider renting out your existing home, if it has not sold, on a month-to-month lease so while it is still on the market for sale, you could be receiving an income to assist with the mortgage payments.
  • Refinance: Perhaps the payments are going to be too high to carry two mortgages. It might be possible to re-write your current mortgage to lower the payments or ensure that the mortgage payments for your new home start off very low.
  • Bridge Financing: If your existing home has sold but there is a two or three week period when you own both homes, you can take possession of your new home while you still own your existing home with bridge financing. The lender for the mortgage on your new home will also advance the balance of the down payment ahead of your sale completing. The cost is usually around $250-$300 for set-up and administration and then you pay a daily interest rate based on prime plus 4-6.25 per cent.

Sell First — You have a buyer and offer for your existing home before you've found your next home, and you may find yourself living with family, friends, or in a hotel. This might occur if you haven’t found your new home or if convenient closing dates cannot be negotiated – is it worth it?

This scenario can be a little more challenging and some possible solutions include the following:

  • You could ensure the offer includes a clause that the sale is conditional on you purchasing a new home.
  • You might request a longer closing date to give you time to find a new home.
  • There are some instances when the purchaser of your home might not need to move in the exact day that you are planning to close the purchase. In this particular case you might be able to buy some time by simple “renting” from the new owners. This is useful if you have found your dream home but you are not moving in for a few days or weeks.
  • Bridge Financing: Just as above.

Always speak to a mortgage broker before you start the process to ensure you are pre-approved and are clear on your possible options. The new mortgage rules have made qualifying for a mortgage much more challenging than before so working with someone who has access to all possible solutions is the smartest choice.

There are a number of different options and your own personal situation will determine which option works best for you. I’d be happy to discuss these with you.

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About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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