It can be very advantageous if you are willing to put in a little extra time and effort to determine if it is a feasible option for you. The planning typically goes like this. First, you determine the size and type mortgage you want to end up with on your new home after your current house has sold. Then you add a temporary “patch” to fill in for the equity tied up in your current home until it’s sold and the equity is freed up.
The “patch” consists of money from a temporary source. I have seen people use one, or a combination of these temporary sources in the past:
- A bridge loan using the home they are selling as collateral
- Borrow against a Home Equity Line of Credit on the home they are selling
- Set up a Home Equity Line of Credit on the home they are buying
- Seller paid closing costs on the home they are buying
- Write a check against a stock margin account
- Borrow against the cash value of life insurance
- Borrow against a tangible asset such as a car
- Get a loan/gift from a relative
- Sell stock
- Sell bonds
- Take out a loan against their 401K
When their current home sold, they used the freed up equity to pay back the temporary source.
Not everyone has these sources available. However if the option fits, it gives you a way to tie up that new home, so you don’t loose it to another homebuyer. It also leaves you in a stronger negotiating position on the home you are buying, because your offer to purchase the new home is not contingent on selling your current house.
My experience has shown that approximately half of the clients that plan on temporary financing, end up selling their current home before the new home closes and never actually use the temporary financing. They still received the full benefit of tying up a home they really want before putting their current house on the market and they are able to negotiate the purchase of their new home from a strong non-contingent negotiating position.
Be sure to discuss a non-contingent purchase along with other options with an experienced Realtor that you trust.
