Buying a New House Before Selling Your Old House

So you've done what so many people do -- you've found the house of your dreams before you've sold your existing house (or even thought of selling if you're like me and my wife).

How do you make it happen and keep from causing yourself a divorce or nervous breakdown?

There are quite a few questions that arise and need to be addressed when you consider making a move like this:

• Will you qualify -- typically, your new mortgage and your existing mortgage(s) will count in your debt-to-income ratios
• What about your current equity -- how will you move that from your existing home into your new home?
• Double payments -- when do those kick in and are you willing and able to take that risk?

The way that I usually suggest that people handle the new loan is to do something like an 80/15/5 on the new house -- 80% first mortgage, 15% equity line and a 5% down payment from their own funds or from their current equity line. This allows you to payoff the equity line if you choose to once your house sells and get into the new home without fussing about the equity that remains in your existing home. However, you still face the possibility of double payments after a month or so.

Let's consider a "Plan B"

This is a twist that takes an open-mind and some creativity -- some banks out there offer something called a single-pay note (also referred to as a 90 day or 180 day note). You could apply for such a loan, use it to payoff what you owe on your existing home and then get a new loan for the new house.

The beauty of the single-pay note is that you do not have to make monthly payments on it, thus taking out the worry of "double payments." The interest accrues on the note, but it is not required to be paid until the 90 or 180 days has passed. If you reach that point and your house has not sold, you are required to pay the original principal balance plus the accrued interest OR slip your banker a 20 spot and ask them to extend the note for you ;-)

Creativity can go a long way when you want to buy before you sell!!!