Buying a new home can be an exciting adventure, but it also usually comes with much stress and anxiety, especially when you buy a home in]market_city] when you already have a mortgage on your current home. Ideally, you would time everything so that you sell your current home and then buy the new home in quick succession. But it just doesn’t always work out that way. So let’s look at some of your options in this scenario – that is, how to buy a home in New Jersey when you already have a mortgage.
To buy a home in New Jersey when you already have a mortgage with as little stress and anxiety as possible, you need to begin by taking the right preliminary steps. The most important of these are . . .
REVIEWING YOUR FINANCES
“Determine your budget to purchase the second home. Decide how much of a downpayment you can afford and how much of a monthly payment you can take on. Lenders will require that the new housing monthly payment plus the existing credit obligations do not exceed 43 percent of your gross monthly income before taxes and deductions. Be sure to include the property taxes, the hazard insurance, and the association dues in calculating the maximum monthly payment.”
SAVING UP SOME CASH
Typically, a lender requires that you have “between two and six months worth of payments for the new home saved in the bank as reserves.” But this doesn’t necessarily have to be cash in a checking or savings account. It can also be in the form of, say, your 401k or stocks you own – anything that can be liquidated to meet the requirement.
“The lender can require proof of these funds in addition to the funds required for the down payment or closing costs. You would need to provide proof of the reserves via recent account statements.”
It’s also a good idea, when you buy a home in New Jersey, to get pre-approved for a mortgage so that you’ll know how much you can in fact borrow. And keep in mind that pre-approval is different from pre-qualification.
“Pre-qualification is simply an opinion from the lender’s loan officer of what loan terms he thinks the lender will approve, whereas a pre-approval is guaranteed ‘yes’ for a certain loan amount. . . . The pre-approval should state the maximum purchase price and loan amount for the new home.”
Once you’ve done this preliminary work, you’re ready to take some practical steps to help you buy a home in New Jersey when you already have a mortgage. These include . . .
HIRING A GOOD LOCAL AGENT
You want to reach as many qualified buyers as possible if you need to sell your current home fast. “A real estate agent can help you sell your home faster by performing market research, pricing it correctly, and listing it online where it will attract the most potential buyers.”
To discover more about how a New Jersey agent can assist you, just call 855-966-DEAL.
MAKING A CONTINGENCY OFFER
If you already have a mortgage and you want to buy a home inNew Jersey, writing a home sale contingency into the offer can afford some peace of mind. Basically, this is a clause in the purchase contract that says the offer is good and the sale will go through only if your current home sells first.
“The contingency addendum – which is signed by both you and the seller –outlines how quickly you need to list your current home and how long you can take to sell your home before the seller can terminate the agreement. . . . A contingency offer is a good way to avoid financial risk if you think you may have trouble selling your home. But keep in mind that it could also prevent a seller from accepting your offer, especially in a competitive market.”
Be sure to consult a New Jersey agent at 855-966-DEAL to determine the best way to proceed in this matter.
You also have some additional options to lessen the financial burden when you buy a home in New Jersey when you already have a mortgage . . .
RENT OUT THE OLD HOME
One possibility is to rent out your old home in order to cover the mortgage payments on it or to earn some income to cover the mortgage on the new home. An effective strategy here is a lease-purchase option in which “a portion of each month’s rent from the tenant contributes to a downpayment on your old home. At the end of the specified renting period, the renter is obligated by contract to buy your house.”
USE A HELOC OR BRIDGE LOAN
Most people just don’t have the finances to comfortably buy a home when they already have a mortgage, but a home equity line of credit (HELOC) or a bridge loan can help ease the financial burden.
- HELOC – Allows you “to make several withdrawals within the draw period up to your maximum credit line. That way, you can draw the amount you need to close on your new home while waiting for your current one to sell.”
- Bridge loan – A short-term loan that “covers the interval between buying your new home and selling your current one.” This can be a good option if you’re fairly confident that your old home will sell quickly. The downside is that it may be difficult to find a lender willing to offer a bridge loan.
Get the Agent Advantage
There are, then, ways to buy a home when you already have a mortgage, but it’s not always easy. That’s why it’s important to work with an experienced New Jersey agent who can guide you through the whole process and help you avoid the pitfalls. So if you already have a mortgage and want to buy a home in New Jersey, be sure to contact us today at 855-966-DEAL.