In the current real estate market, you may be surprised at just how quickly your properly priced and staged home will sell. You're got a buyer for your current home, but you haven't found a new home yet - or can't move in because it's still under construction. Now what do you do? There are a few ways to proceed.
Rent Back. If your buyers don't need to move in right away, they may agree to a "rent back." Essentially you become your buyers' tenant after you close on the sale of your home. You'll sign an agreement to stay in the home for a specific length of time and a specific payment, whether it is broken down by day, week or month.
Temporary Housing. This is becoming increasingly popular as homes sell quickly in this market. If you are only going to be "homeless" for a few days or weeks, an "extended stay" hotel is a viable option. Many of these hotels also accept pets. Generally the accommodations are a suite with one or two bedrooms, a living area and a small kitchen and eating area. They can be a little pricey, but most have free happy hours with appetizers during the week, so you can cut down on food costs - and you'll get housekeeping. So think of it as a sort of vacation!
Short Term Housing is another popular alternative. You may be able to find a home or apartment that is available for a couple months, perhaps even an Air BnB, but there are also many larger apartment complexes that now cater to people who need housing for 3-12 months. The shorter the rental term, the higher the monthly rent, but many of these complexes accept pets, some have garage spaces available and come with many welcome amenities like gyms, theater rooms and pools. Again, think of it as a vacation and enjoy your stay!
Family or Friends. If you have family or friends with extra space, staying with them can be a cost-effective solution. Or perhaps your parents, grandparents or friends are going to be away for a while and need a housesitter. This could be the perfect situation.
Bridge Loans. Also known as "swing loans" or "transition loans," bridge loans are a type of short-term financing used when you want to buy a new house, but you haven’t closed on the sale of your old house. Your current home serves as the collateral for the bridge loan. You pay off the bridge loan with the proceeds from the sale of your old home.
Bridge loans typically last between 90 days to one year. During the term of the loan, you typically make interest-only payments. However, there are substantial upfront fees. The amount you can borrow is determined by the amount of equity you have in your old home. You can either borrow enough money to pay off your existing mortgage and make the down payment on your new home or you can continue to make your monthly mortgage payments, and only borrow enough to cover the down payment on your new house.
There are some down sides to such a loan. If you haven't sold your current home by the time the bridge loan expires, you would not only have to pay the accumulated interest, but you would have to refinance the loan into a standard mortgage with fixed monthly payments to cover both principal and interest. Qualifying for one mortgage can be a tough hurdle, with a ton of paperwork. Getting a bridge loan means you are essentially qualifying to carry two mortgages, so don't expect the process to be easy or inexpensive.
Winter at the Beach, Summer at the Ski Slope. If your in-between homes time coincides with the vacation off season, inquire about renting at below seasonal costs when landlords generally are collecting no rents. Often times the owners are looking for someone willing to stay in their vacation home so they can collect some income and be sure the property is okay when there are fewer people in the area to keep an eye on it.
Building a New Home. Building your own home is a huge undertaking with many costs along the way. To make sure they can meet these expenses in a timely fashion, many homeowners turn to construction loans, which are short-term, variable-rate loans with short-term interest rates. Your lender pays the builder on a prearranged schedule as your home is being built.
While the work is being completed, you make interest-only payments on the loan. When your home is complete and you can move in, the bridge loan gets paid off and you get a permanent mortgage. Keep in mind that if you add upgrades to your new construction home, you likely will need to pay between 50% and 100% of the cost upfront - unless you are working with a national builder in a large complex, where you may only have to pay 10% up front for upgrades.
There are two basic types of construction loans:
1. Construction-only loan.
Provides short-term financing, lasting between six months to a year and gets replaced by a traditional mortgage once the construction is completed.
During the life of the loan, you make interest-only payments. The principal is due in a lump sum upon completion of the construction.
At that time, you can apply for a mortgage from the same lender, or shop around for a mortgage with lower rates.
Keep in mind that if you borrow from another lender, it means going through another closing with all of the associated costs.
2. Construction-to-permanent loan.
The lender automatically converts your construction loan into a standard mortgage after your home is complete. The advantage to this type of loan is that there is only one loan application and one closing. The one major disadvantage is that you have to agree to the mortgage rate and terms before the construction is complete.
There are lenders who allow you to lock in your mortgage rate for up to 12 months during construction. However, some lenders also offer a rate lock with float-down option. This entitles the borrower to have the locked interest rates reduced if market interest rates fall during the lock period.
Whatever your situation, be sure to discuss your options with your Realtor. Our experience and connections can help you navigate the waters to find the solution that's best for you!