Home owning offers rewards, but paying two mortgages can be tricky. That happens when you find your dream home and need to snatch it up for the right price before you have time to sell your current home or when a new baby, job relocation or retirement downsizing finds you buying a home in a hurry. I know it’s financially challenging, but you can afford to pay two mortgages and maintain two houses when you exercise creative financing options.
Obtain Secured Bridge Financing
Your financial institution may be able and willing to provide you with secured bridge financing. It bundles the payments on both of your homes into one loan. This type of loan typically lasts for six to 12 months and includes an interest rate of six-and-a-half to eight percent. To obtain bridge financing, your debt-to-income ratio must be under forty percent.
Ask for an Unsecured Bridge Loan
If your first house is under contract, you can ask your lender for an unsecured bridge loan. It typically comes with a high interest rate, but you won’t have the loan for very long and thus will not pay much interest. As soon as the home selling process is complete, you will repay the bridge loan immediately.
Investigate a Home Equity Line of Credit
The house you want to move out of may be eligible for a line of credit known as HELOC. If so, you can apply that money toward your new home’s down payment and repay it after the first house sells. For the best chance of receiving a HELOC, I recommend you talk with your primary financial institution where you have an established relationship.
Borrow Money From Family or Friends
Your loved ones may be willing to invest in your dream of home owning, especially if they’re financially able to lend you money with affordable loan terms. Sit down together and discuss the amount of money you need to borrow and set an interest rate. Additionally, write a binding repayment plan, but ask if you can defer payments until your first home successfully sells.
Withdraw Funds From Your 401k
The money in your 401k could assist you in buying a home and paying two mortgages. While you can always repay your 401k after your first home sells, be sure you understand any penalties. The IRS will charge a 10 percent penalty, and the money you withdraw counts as income for the year. As an affordable alternative, ask your employer about borrowing from your 401k and repaying it within five years.
Apply for a Personal Loan
Although the interest rate hovers around 15 percent, a personal loan must be repaid in a few years and would cover expenses related to financing two homes. Discuss your options with your financial institution, and keep in mind that personal loans do affect your debt-to-income ratio as you navigate the mortgage qualification process.
Renting your first house to tenants may be a viable option until you can complete the home selling process. While leases typically last for 12 months, look for a tenant who’s willing to sign a month-to-month lease. Then, carefully vet potential renters to ensure they will pay rent on time, take care of the property and cooperate with home showings.
When faced with the reality of owning two houses, carefully consider your financial options. You can afford to juggle both properties for a short time when you find the right financing for your budget and needs. Then, enjoy the rewards of home owning as you move out of one home and into another.
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