In a competitive seller's market characterized by an extreme listing shortage and impressively short days on market, it's hard to land your dream home with an offer that has a contingent sale attached to it. This reality can leave Denver home buyersin a pinch if you sell your current home to secure your down payment for your next home,you may end up in your mom's basement for a few months. Mom's cooking might sweeten the deal, but a double move is never fun.Don't worry, this isn't your only option. Learn how to buy and sell a home in a seller's market with thesecreative financing options.
5 Creative Financing Solutions for Moving Up in a Seller's Market
1. Use abuy before you sell service
There are some new services that you can engage to help you purchase before you sell, like Knock,Homeward, and ourin-house solution RealSURE who's business model is to purchase your new home with their cash, rent it back to you while you list your existing home, then sell your new home back to you for the price you negotiated when they purchased it on your behalf.
PROS: Provides an option to buy first for homebuyers who otherwise feel stuck. Plus, cash offers are more likely to get accepted so Homeward fronting the cash can help you to secure the home in a competitive market.
CONS: This service can be costly, but you do get a better deal if you use their affiliated mortgage company.
2. Use asell before you buyservice
Another new program that has surfaced due to the current market conditions is EasyKnock. With EasyKnock, you sell your home to them first then rent it back from the company, freeingup the equity in your home to purchase your next home.
PROS: Allows you to stay in your current home while shopping for your next home, meaning you only move once.
CONS: This service comes with a hefty cost for the convenience it affords you.
3. Maintain ownership of your current home as an investment property
Are you willing to be a landlord? Then this option could be the one for you. By having a tenant pay your mortgage month after month, you'll be building your wealth with their money.
PROS: You'll be building your wealth and growing your assets. Since you'll be collecting rent, you won't have to qualify to pay both mortgages (use your rental income to offset your first mortgage)
CONS: If you haven't saved enough for a down payment, you'll have to œcash out refinance in order to pull equity from your rental property whichcan be an involved process. Also, you'll want to consider the ongoing time investment to manage the property.
4. Home Equity Line of Credit (HELOC)
Use the equity you've built in your current home to finance your new home's down payment. By taking out a home equity line of credit, you'll basically roll your home investment from your current residence to your new one.
PROS: With sizablehome appreciation rates over the past few years, you'll likely have access to a sizable amount of money for your down payment and you can pay off the entirety of this loan once your existing home is sold,effectively minimizing the need to pay interest.
CONS: This process requires a time investment and a HELOCrequires income approval for ability to pay both your existing and new home mortgage
5. 401K Loan
Another option is to borrow money from your 401K for your new home's down payment.
PROS: You won't be financially penalized as long as you pay this loan back within the specified amount of time and this process is more streamlined than that of acquiring a home equity line of credit.
CONS: Typically, you'll only be allowed to use about 50% of your total 401K balance. This may or may not not be enough to finance your down payment.
We're glad to see new options popping up to help navigate tricky circumstances like a simultaneous purchase/sale and move up in Denver's crazy seller's market. Your Corcoran Perry & Co.real estate agent can provide more information on all of these options or refer you to a lender for more details.
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