Ready to buy but have negative equity? What are your options?

00442233 With Twin Cities average home sale prices receding back an average of about 10 years it's not surprising that many potential sellers don't have enough equity in their homes to sell and pay off their mortgage balance right now.

Many in this situation bought when they were single and/or with no children… now have growing families… and are bursting at the seams.  They are having no problem making their mortgage payments, have good credit scores and want to keep them that way… they just no longer fit in their current home!

With home prices and interest rates both low, this is a wonderful time to buy up… but if you can't pay off your current mortgage with your proceeds when you sell, are you stuck?

This is a conundrum I hear replayed over and over. Here are a couple options that have worked for my clients in this situation.

1) Sell your current home and bring cash to closing

This likely isn't the scenario you expected when you bought your current home, but you can think of it as part of the down payment on your new home. In many cases, the savings on your new home will offset the loss on your current one. Many in this situation who don't have enough cash of their own use gift funds from family members.

2) Buy a new home, then rent out your current one

Even though you plan to rent out your current home after you move, the bank will not consider expected rent as income because there is no rental history. You must qualify to own both your current home and your new home at the same time. In this scenario your current home will become investment property.

Sharlene Hensrud, RE/MAX Results - EmailMinneapolis-St. Paul Realtor

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I love what I do! Highly insightful, analytical and creative, there is nothing I love more than helping you find the right solution for your real estate transition. My mission is to serve my clients with honesty and integrity, exceeding their expectations in service and support… and to help others by donating a portion of every transaction to Habitat for Humanity.

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