If you want to buy your next home before selling your current house, there is a practical way to make it happen without a rushed, same-day closing. Many homeowners who are upsizing or downsizing want to move at their own pace, and a home equity line of credit can make that possible by unlocking cash from your current home before it ever hits the market.
Coordinating a sale and a purchase to close on the same day is stressful. You have to time your move perfectly, pack up an entire household in a matter of hours, and hope nothing falls through on either side. Many homeowners would rather take their time finding the right next home and moving into it at a comfortable pace, but that usually means finding a way to access cash for a down payment before the old house is sold.
Before you list your current house, you can open a home equity line of credit against it, and some lenders will go up to a high percentage of your home’s value. That line of credit becomes the source of funds for your down payment on the new house. This lets you close on your next home first, move your belongings at your own pace, and then list and sell your current house without the pressure of a rushed same-day transaction.
Say you are buying a $400,000 house and you want your ending mortgage on the new home to be $100,000. You would get a $100,000 first mortgage on the new house, and the rest of the purchase price would come from the home equity line of credit you opened on your current home. Once you close, you own both properties for a short period. When your old house sells, the proceeds pay off both the home equity line of credit and the original first mortgage on that property, leaving you in your new home with exactly the mortgage balance you wanted.
The part that trips people up is that you have to qualify to carry your existing mortgage, the new home equity line of credit payment, and the new home’s mortgage all at the same time, even though it’s only temporary. Lenders look at your full debt-to-income picture as it stands at closing, not what it will look like after your old house sells. This is exactly why working with an experienced mortgage broker matters. The last thing you want is to get under contract on your dream home and then find out your loan officer didn’t structure things correctly and the deal falls apart.
If the extra debt from a home equity line of credit makes your debt-to-income ratio too tight, there is another tool that can help: using retirement assets to offset qualifying income. Instead of taking ongoing distributions from a 401(k) or IRA, some loan programs allow a one-time distribution to be averaged over three years, or 36 months, and counted as qualifying monthly income. You take the balance being used, divide it by 36, and that figure can help offset the temporary debt load without disrupting your long-term retirement savings strategy.
It depends on your lender and your current mortgage balance, but some programs will allow you to borrow up to a very high percentage of your home’s value when combining a HELOC with your existing loan.
This strategy works best when you have a realistic plan for listing and selling your current home fairly soon after closing on the new one, since you’ll be carrying payments on both properties in the meantime. Your mortgage broker can help you plan a realistic timeline before you commit.
No. Retirement asset income is only one option to help offset debt-to-income ratios if the HELOC payment makes qualifying tight. Many borrowers qualify with just their regular income and the home equity line of credit.
It accomplishes a similar goal, but a home equity line of credit is often easier to qualify for and less expensive than a traditional bridge loan, which is why many of my clients prefer this approach.
Buying your next home before selling your current one takes careful planning, but it can save you from a rushed move and a stressful same-day closing. If you’d like to find out whether this strategy makes sense for your situation, Apply now to get started, or contact me and we’ll map out the numbers together based on your current home’s equity and your target purchase price.
Scott Hastings is a Licensed Mortgage Loan Originator and founder of Mortgages by Scott, bringing more than 20 years of experience helping clients achieve their homeownership goals. A native Charlottean and graduate of Charlotte Christian School and East Carolina University, Scott specializes in mortgage solutions for self-employed entrepreneurs, real estate investors, luxury homebuyers, and families seeking a more personalized lending experience.
Based in Mount Ulla, North Carolina, Scott is known for his hands-on approach, straightforward guidance, and commitment to making the mortgage process simple and stress-free. When he’s not helping clients secure financing, he enjoys CrossFit, traveling with his wife Stacey to dressage competitions, and spending time with family and friends on their farm. His mission is simple: provide the right mortgage strategy with exceptional service, without the red tape.
