Preparing To Buy or Sell Your Home
It’s April, the weather is heating up, and the housing market should follow accordingly. This Spring’s market is slightly tougher to predict with mortgage rates coming off their all-time lows, but based on past rate cycles, we can make two predictions: there will be strong inventory and there will be good deals. If you’re preparing for this market as a buyer or a seller, here’s how to make sure you’re ready to capture one of those deals.
Buyers: Present ‘15-Day Close’ Offers
On the buy side, your strategy is simple: make sure you’re pre-approved for financing. When preparing to buy a home, your first inclination often to call your Realtor, but most Realtors will tell you that getting pre-approved with a mortgage broker is the first step.
Your mortgage broker will help you determine what purchase price range is right for you, and help you select a loan that fits your budget and time horizon. They will also evaluate your cash situation and help you determine how much down payment to bring to a deal.
A good lender uses all this information to help your Realtor write the most competitive purchase offer. Good lenders can also strengthen most offers in a competitive market with a 15-day close. For the seller, this means that your deal will close in half the time as other offers they receive. Some homes are still priced to generate multiple offers, so a guaranteed fast close is one of the best ways for a buyer to stand out.
Sellers: Buy Without Selling First
On the sell side, your strategy is a bit more involved. When you’re selling your home, you’re usually looking to buy a new home to move into. But how can you close on a new home in 15 days (or even 30 for that matter) if you have to sell your current home first? How can you bring in a large down payment on a new home without first selling your current home?
In other words, how can you get the seller on a new home to take you seriously? The answer is that you convert the equity in your existing home to cash before you sell.
You do this by getting a Home Equity Line of Credit (HELOC) 2nd mortgage on your existing home. You use this use the cash from the HELOC to put a large down payment on a new home, and you can still close the deal in 15 days. Sellers will take you very seriously because your offer is not contingent on the sale of your current home.
Phase two of the process is to sell your current home after you’ve closed the new purchase. This may take a few months, which means you are carrying a 1st and a 2nd mortgage on your existing home plus a 1st mortgage on your new home. But you can use the HELOC 2nd mortgage that you took out to cover all those expenses while you’re selling your existing home. Then when you sell your current home, the proceeds pay off both loans, leaving you with just your single loan on the new home – and in some cases, some extra cash. You can always take that cash and pay down the loan on your new home right away.
If you’re thinking about trading your existing home for a new one anytime in 2006, you should get a HELOC in place now. For borrowers with good credit, the HELOC is often free. And if you don’t use the HELOC, there is no payment. You don’t pay interest until you access these funds.
Make Sure You’re Prepared In Advance
It’s true that rates are normalizing from their all-time lows. But this is something that can present an opportunity because it means there are more deals available than there have been in the past few years. The trick is to be prepared both as a buyer and as a seller. As you can see from the descriptions above, there is some work to do now, but it’s something your mortgage planner can get done for you in one or two phone calls. So enjoy the warmer weather, and good luck with your property plans.