Buying Without Selling a Home

by Jane from Kissimmee

Ask Kate about buying without selling a current home: Kate, my husband and I moved to the USA three years ago and as a result have very little credit history. Because we could not get credit, we bought our home and car with what little cash we have. My husband now has a very good job, but we need to move.



Jane continues... We thought it would be easy to mortgage the home we have and rent it out, then use the proceeds to buy a new home, again with cash.

However, we tried a couple of big banks and are getting nowhere, they say we can't have an equity loan because we don't have a mortgage, and even so, our credit history is insufficient.

My husband has an excellent job and is more than capable of paying for a mortgage without any rental income. Is there any solution for us? What should we be trying to do?

Kate Answers: Buying Without Selling a Current Home

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Dear Jane,

Argh! Mortgage approval guidelines can be so inadequate.

You obviously are good at managing your obligations and excellent at saving money! Employment is not the issue either! In other words, the system is flawed.

But don't despair! I have several suggestions for working within the system. The first two are for buying a home right now. The last two are long-term solutions.

1. Mortgage Tips for Buying Without Selling a Current Home

This difficulty of financing a house with no mortgage goes in and out of vogue. During some cycles, underwriting guidelines don't bat an eyelash at pulling a significant amount of cash from a free-and-clear property. Obviously though, today's money is tight.

So I'd apply for two mortgages. Using your current home as collateral, request a small cash-out mortgage for the down payment on the new home, equal to 20%. Then ask for an 80% mortgage on the new home. For example, if the purchase price is $200,000, you would apply for a $40,000 cash-out loan on your existing home and a $160,000 mortgage on the new home.

I haven't forgotten that you were turned down for an equity loan. But using this scenario of two loans - two properties, you could possibly tip the scales in your favor.

Sidebar: It pays to think outside the box! I used this method of two loans - two properties to the amazement of my co-workers. After not being able to obtain loan approval for one mortgage, I'd walk away from underwriting with two approved home loans.

Don't hesitate to point out that you have sufficient income to qualify for two mortgages without the assistance of rental income. Although it may seem obvious to you, mortgage companies often miss the forest for the trees because they are caught up in the details of underwriting guidelines.
This scenario of two loans - two properties should be discussed with the lending representative and an accountant before the application process, especially since occupancy status of the current home would be affected.

2. Buying a Home on Contract

Thirdly, have you considered buying a home on contract? This means the seller of the home would double as the lender. If you could negotiate terms not requiring a downpayment, you would not need to refinance your current home.

Go to Private Mortgage Financing to learn about Title and Grant Deeds vs Home Mortgage and Trust Deeds, because you should understand the distinction between owning and owing.

3. Establish Credit to Reach Your Goals

In the long-term, reaching your goals will be easier if you take steps to establish credit. I'd suggest applying for 3 secured credit cards. Yes, you will be required to deposit cash as collateral. But after a year, you should begin receiving offers for non-secured credit cards with lower interest rates and no annual fees.

In the meanwhile, use the secured credit cards for purchases you'd normally buy. Pay the balance in full when the bill comes. Important: Before you accept a secured credit card, read the terms and conditions carefully.

4. Monitor Major Credit Reporting Agencies

My last suggestion is to to monitor the three major credit reporting agencies. Ordering your credit report quarterly is not too often plus you won't have to depend on a lender for your credit history information. Go to 3 Major Credit Reporting Agencies to see how!

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Best wishes,

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