You own a home now, but it’s time to make a change. If you’re downsizing or moving up, you likely have questions about how it all works. That is, the logistics of buying another home while you still own your existing property.
Here is what you need to know about going through the two transactions at once to make the move as smooth as possible…
Get the facts on your existing home
What is your current home worth?
Find out the value of your home by asking a realtor to provide you with a detailed market evaluation. This will give you an idea of what residual funds you will net from the sale of your existing home which will determine how to structure a mortgage for the new home.
Four questions to ask your current lender
1/ What is the current mortgage balance owing and can the terms be “ported” to a different property?
2/ If it is and you are moving up, can the new mortgage rate be “blended” with the rate you are currently paying?
3/ What will that new blended rate be in order to avoid a payout penalty?
4/ If you decided to pay out the existing mortgage and the penalty in order to get a better rate, what would that penalty be?
Do be advised you are required to qualify for any new mortgage whether you “port” the existing mortgage to a new property or get a brand new one as you are effectively only “porting” the terms of the mortgage.
How are you going to sell your current home?
Options available to sell your home include a sale by owner, by a realtor, or somewhere in between the two such as “Comfree”. I recommend using the services of a realtor as I personally would like to leave any showings and negotiations with any potential buyers in the hands of a professional.
Financing your next home
1/ Secure a pre-approval
- Based on your initial findings about your current residence, I recommend obtaining a pre-approval for your next purchase as this will give you an idea of what kind of requirements you’ll need to meet in order to be approved for your next mortgage.
2/ What if you’re existing home hasn’t sold by the time you take possession of the new home?
- Your new mortgage may contain a condition to confirm your existing place has sold. This could be for either downpayment or qualifying purposes, or both. See if a back-up plan is possible in case you’re existing home does not sell by the time you take possession of your new home. Your mortgage professional can work through a few potential scenarios with you until you’re comfortable with the options you have for all possible outcomes.
3/ Keeping both homes, with one as a rental property
- Perhaps you are looking into the possibility of keeping your current home and turning it into a rental property. Some lenders will allow this as long as you can qualify to carry both properties. As any potential rental income will help you qualify, be advised that lenders tend to calculate the inclusion of rental income differently, so if you don’t qualify with one lender, check others.
4/ What down payment requirements and proof do you need to provide?
- If the down payment is coming from anywhere other than the sale of your existing home, the requirements are pretty straightforward, and your lender will look for the paper trail to support the source of the funds being used. If the down payment funds are coming from the sale of a property, you’ll be asked to confirm what your equity position is via a current mortgage statement, as well as a copy of a fully-executed sale agreement for your current residence, along with all condition removals related to that contract.
What exactly is interim or bridge financing?
If the possession date for the purchase property is before the closing date on your current property you will likely require interim or bridge financing to obtain the down payment. Be aware that not all lenders offer bridge or interim financing and the terms and costs for this service can vary, so double check the conditions before you commit.
Moving confidently from one home to the next
It can be stressful to sell and buy simultaneously and there are a lot of things that need to go right in order for everything to go smoothly for you. Explore your options until you find one that allows you to confidently move forward into your next home while leaving the last one fondly behind.
Contact the MortgageGirlca today and put her over 35 years of experience to work for you. Phone – 780-433-8412, Email – email@example.com. Follow on Facebook (Mortgagegirl.ca), Twitter (Mortgagegirlca) or her website MortgageGirl.ca.