Home Equity Archives | Michigan Mortgage

You found the house you want to buy, but there’s one problem: you still own your current home.

Do you have to sell first?

Not necessarily. It may be possible to buy your next home before selling your current one, depending on your finances, available equity, and the mortgage options you qualify for.

For homeowners who are ready to move, understanding your options before listing your current home can make the transition much easier.

Can I Qualify for a New Mortgage Before My Current Home Sells?

Possibly.

One of the first things your Loan Officer will look at is whether you can qualify while you still have a mortgage payment on your current home.

Your income, existing debts, available assets, credit, and the amount of equity you have in your current home can all play a role.

If carrying both homes temporarily isn’t an option, that doesn’t automatically mean you have to sell first. There may be other strategies worth exploring.

What Is a Bridge Loan?

A bridge loan is a short-term financing option designed to help homeowners “bridge” the gap between their current home and their next one.

Depending on the program and your situation, a bridge loan may allow you to access some of the equity in your current home before it sells.

Those funds could potentially be used toward the purchase of your next home, allowing you to move forward without waiting for your current sale to close.

Once your existing home sells, the bridge loan is typically paid off according to the terms of the loan.

Why Would Someone Buy Before Selling?

For many homeowners, it’s about making the move easier.

Buying first may give you more time to find the right home instead of feeling pressured to purchase something simply because your current home sold.

It can also help you avoid trying to coordinate two closings on the same day, moving everything at once, or finding temporary housing between homes.

In a competitive housing market, it may also allow you to make an offer without a home-sale contingency, depending on your financing and situation.

What Are the Risks of Buying First?

Buying before selling isn’t right for everyone.

For a period of time, you could be responsible for expenses associated with both properties. You’ll also need to consider what happens if your current home takes longer to sell or sells for less than anticipated.

That’s why it’s important to understand the numbers before making an offer on your next home.

Your Loan Officer can help you look at different scenarios so you know what the transition could realistically look like.

Should I Sell My House First or Buy First?

There’s no universal right answer.

Selling first may make sense if you need the proceeds from your current home to purchase the next one or want to minimize financial risk.

Buying first may make sense if you have sufficient income, savings, or home equity and want more flexibility when searching for your next home.

The best strategy depends on your finances, your local housing market, and what matters most to you during the move.

Start With the Financing Before You Start House Hunting

If you’re thinking about selling and buying at the same time, don’t wait until you’ve found your next house to figure out the financing.

Michigan Mortgage can help you understand how much equity you have, what you may qualify for, and whether options like a bridge loan could help you make the move.

There may be more than one way to get from your current home to your next one. Let’s find the one that makes the most sense for you.

Homeownership is a significant accomplishment that presents various opportunities. Besides the satisfaction that comes with owning a house, it can also be a valuable asset that helps you establish wealth. Homeowners can leverage the potential of their property using a Home Equity Line of Credit (HELOC).

For homeowners who require access to funds but are unwilling or uninterested in taking out a traditional loan, a HELOC can be a flexible and convenient financial option.

What is a HELOC?

A HELOC is a type of second mortgage that allows homeowners to borrow against the equity they have built up in their property. Equity is the difference between the current value of the property and the outstanding mortgage balance. With a HELOC, borrowers can access funds up to a specific limit, typically based on a percentage of their home’s appraised value minus any outstanding mortgage debt.

HELOC funds can be used for a variety of purposes. Homeowners can use the funds to cover various expenses, such as home renovations, education costs, consolidating high-interest debts, etc.

How Much Can You Borrow With a HELOC?

The amount of money you can borrow with a HELOC depends on several factors, including the appraised value of your home, the amount of equity you have, and the lender’s guidelines.

For example, let’s say your home is appraised at $300,000, your lender will give you a HELOC with 85% LTV, and you have an outstanding mortgage balance of $200,000. In this case, the maximum HELOC limit would be calculated as follows:

Appraised value: $300,000
Maximum loan-to-value ratio: 85%
Outstanding mortgage balance: $200,000

Calculation: $300,000 x 0.85 – $200,000 = $55,000

Based on these figures, you could potentially borrow up to $55,000 through a HELOC.

How Does a HELOC Work?

A HELOC has two phases: the draw period and the repayment period. The specific terms of a HELOC can vary between the two based on individual circumstances and lender requirements. For example, you may take out a 20-year HELOC with a 10-year draw period and a 10-year repayment period. During both periods, you will make payments on the loan.

Phase One: The HELOC Draw Period

During the draw period of a HELOC, homeowners can access the funds as needed. This phase typically lasts for a predetermined period, generally around ten years.

During the draw period, you can access funds from your line of credit as required, with the option to make minimum payments or even consider interest-only payments on the borrowed amount. However, it’s important to note that if you reach your available limit, you will be required to settle your outstanding balance before accessing additional funds.

Phase Two: The HELOC Repayment Period

After the draw period ends, the HELOC enters the repayment phase. During this period, homeowners can no longer withdraw funds and must start repaying the principal amount borrowed, along with any accumulated interest. The repayment period spans several years, typically 10-20 years.

It’s important to note that the interest rates during the repayment period may differ from those during the draw period. Homeowners should be aware of any changes in interest rates and adjust their financial planning accordingly.

Is a HELOC Right for You?

HELOCs are a popular financing option for homeowners for the many benefits they provide borrowers, including immediate access to funds. A HELOC could be an excellent option for you if:

You want an interest-only payment option
You have a fair credit score
You don’t need all of the funds at once
You can manage two house payments
You want to be able to pay off and reuse funds as needed

Alternatives to HELOCs

If you’re considering tapping into your home’s equity, but a HELOC doesn’t seem like the right fit for you, don’t worry! There are alternative options that you can explore.

Home Equity Loans

A home equity loan is another way to access the equity in your home. A home equity loan may be a good option for you if:

You’re borrowing a small loan amount
You have a higher credit score
You want a fixed monthly second mortgage payment
You have the capability to handle two separate house payments.
You want to maintain the existing balance on your first mortgage.

Cash-Out Refinancing

Cash-out refinancing is another option to consider to access your home’s equity. A cash-out refinance may be a good option for you if:

You want the lowest possible payment
You have a lower credit score
You want a fixed monthly payment
You want one monthly mortgage payment
You can get a lower interest rate on the new mortgage than you currently have

HELOC Program at Michigan Mortgage

Michigan Mortgage helps you access the equity in your home quickly with our HELOC program. Within five days, you can pay off high-interest debt or carry out home improvement projects with our 100% online and speedy application process. Our flexible payment options enable you to withdraw funds as per your needs. Give us a call to learn more!

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Can I Buy a House Before I Sell My Current Home?