Shopping for a home can be overwhelming enough, but the whole task of buying a home can seem nearly impossible if you’re still waiting for your current home to sell. While the need to sell your home makes buying a bit more involved, there’s no doubt that now is a great time to buy.
Demand is increasing for homes in many of Edmonton’s newest communities and waiting to sell first may mean missing out on builder incentives and low mortgage rates — not to mention potentially losing your dream home.
The good news is you don’t need to wait for your existing home to sell before buying a new one. Here are some of the options available to get you into the new home you want now.
Bridge Loans
Bridge loans are becoming more popular throughout Canada to fill a need amongst homeowners ready to move up into a new house. Bridge (or gap) loans are a form of short-term financing that allows you to “bridge” the gap between your old and new mortgage to own two properties at the same time, giving you the freedom and flexibility you need. With this type of loan, you can use the equity in your current home as a down payment while you wait for the sale of your home.
To determine the amount you need for a bridge loan, take the purchase price of the new house and subtract the value of the mortgage and deposit. This will give you the amount you need to finance until your home sells. Bridge loans are usually provided for up to 90 days and they can offer a great deal of benefit with a fairly low cost.
Home Equity Line of Credit (HELOC)
A HELOC allows you to borrow money against your home equity up to your credit limit, much like a credit card. You will also pay back what you borrow like a credit card with a monthly payment. If you own your home and have existing equity, a HELOC may be an option.
Home equity lines of credit usually offer very low-interest rates, but you will need to obtain the HELOC before you list your current home. That’s because HELOC lenders do not want to make a loan on a home that is going to be sold.
Rent Out Your Current Home
If you want to avoid these financing options, a third option is renting out your current home to buy a new property. Keeping your house as an investment property can give you the cash flow to buy a new property and future passive income as long as you hold the property.
Becoming a landlord is a big decision and it can have major financial and tax responsibilities. It’s a good idea to discuss this idea with a professional to be aware of your obligations as a landlord. A lender will also impose rules when you convert a home into a rental property. If you’re ready to accept the responsibility of being a landlord and you are willing to oversee the property or hire a property manager, you can potentially enjoy rental income as well as appreciation as the home’s value increases with time.
Buying a New Home is Possible Now
Don’t assume you are stuck waiting for your home to sell to buy a new home. Whether you turn to bridge financing, a HELOC, or you choose to rent out your home, coordinating two transactions doesn’t need to be as complicated as you may think. A mortgage specialist can help you better understand your options to get you into your dream home as soon as possible.
Alternatively, if you go and speak with one of our Area Managers they can put you in contact with one of our preferred lenders that would be happy to assist you with any mortgage questions you may have and go over these various financing options with you. Download the showhome map today to find the Area Manager nearest you!
Photo Credit: House, Rental Agreement
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