In an ideal world, your new home would be ready and waiting for you when you decide to relocate closer to your grandchildren, to warmer climes, or to the spot you fell in love with. You’d just move directly from your old home to the new one.
However, most homeowners can’t afford to buy a house unless they sell their old home after retirement. Fortunately, several financial products allow you to borrow money for a down payment on the home of your dreams while you wait to sell your current property. If your lender permits, you might even be able to port your mortgage to the new home.
Read on to learn more about different financial options that enable you to buy a new home before selling the old one. Take stock of your budget and plan carefully to determine the best course of action for your upcoming relocation.
Experts generally advise buying a new home before selling the old one in the seller’s market - when demand is high, with properties selling like hotcakes. That’s because you are likely to sell your home quickly but could struggle to find the next one.
If ready cash isn’t available, you may get it by taking a loan designed to ease the transition. The most popular are moving house mortgages, home equity loans, and home equity lines of credit.
Most lenders determine whether a potential borrower qualifies for a loan based on a combined loan-to-value ratio (CVTL). All loans taken on your property (including the loan you're applying for) are added up and divided by the property’s value. A ratio of 80% or less is considered satisfactory.
Lenders will also look at other factors, such as your sources of income and credit score. Of course, they will require you to provide your home as collateral.
You must carefully crunch the numbers before making your decision. Putting your home as collateral for a loan can be risky. What if it sells later or for less than expected? You might find yourself paying two mortgages, repaying the loan, and footing the taxes and utility bills for two houses. In a worst-case scenario, failing to keep up with the repayments could lead to a foreclosure.
Borrowing money to buy a new house before selling the old one makes sense (a) if your finances are sound and (b) if you want to secure the property you love before someone else snatches it.
Moving mortgages, also called bridge loans or relocation loans, are short-term loans secured by your current home as collateral. The repayment period is typically 6 to 12 months, though it can be as long as three years.
The moving house mortgage application process is relatively simple and quick. Some lenders offer flexible repayment plans, allowing you to go payment-free (or to repay only the interest) during the first several months. The repayment of the total loan kicks in when you sell your house or upon the expiration of the loan term.
The lenders offering bridge loans will often also require that you take out your new home loan with them.
The interest rates on moving mortgages are high and range between about 8% and 10%. The fees associated with bridge loans can also be costly.
A home equity loan, sometimes called a second mortgage, allows you to borrow money against the equity held in your current home. These loans offer lower interest rates than bridge loans, usually 6%. They provide a single lump-sum payment, and the repayments typically start immediately.
Home equity loans are an easily accessible source of funds. Although the interest rate on a home equity loan is usually higher than for the first mortgage, it is lower than the rates on credit cards and other consumer loans.
Most mortgage lenders offer home equity loans. This option could be for you if you have enough equity in your old home and know exactly how much you need for the down payment on your new home.
You must pay the remainder of your home equity loan when you sell your house.
A home equity line of credit (HELOC) is similar to a home equity loan. It also uses the value of your current home as collateral for the loan. However, you don’t get a lump sum. Instead, you get a revolving credit line. This financial option is similar to a credit card. You draw as much money as you need, up to the approved limit.
HELOC is a good choice if you are still shopping around for a new home and don’t know how much you will need for the down payment or closing costs.
HELOCs usually have variable interest rates, which can change monthly. Some lenders offer fixed-rate options. The average HELOC rate currently ranges between 7% and 10%.
You must repay HELOC when you sell your house.
Mortgage porting is common in Canada and Great Britain but not in the United States. If your lender allows porting, you can transfer the terms and conditions of your current mortgage to your new home. The interest rate and repayment structure will remain unchanged.
Porting is an excellent option if you secured your original mortgage at favorable terms. Also, it can save on fees, eliminating costly penalties associated with terminating a mortgage early. On top of that, the process is more streamlined than applying for a new mortgage.
To port a mortgage, you would have to sell the old home and buy a new one at approximately the same time.
Porting a mortgage ties you to the offerings of your current lender, which means that you may miss out on more attractive options available in the market.
Few lenders in the USA allow you to port your mortgage, but it never hurts to ask. Talk to your lender about porting if you are happy with your current mortgage interest rate and know you’ll have to pay a hefty penalty for breaking your mortgage term early.
Perhaps you don’t want to take a loan against your current property or can’t afford to pay for two homes. If your lender does not permit porting a mortgage, you may settle for the traditional way: sell your house after retirement first, pay off the mortgage, and buy another one with the proceeds. In the meantime, rely on the generosity of your family and friends for a place to sleep, or find a short-term rental.
Another option is to make an offer to buy contingent on the sale of your home. However, most sellers hesitate to enter into a property chain deal, where their sale depends on you finding someone to buy your property.
There are many tasks homeowners must tick off when moving house. Fortunately, you can rely on Shyft to simplify the process of getting your belongings from the old home to the new one.
The knowledgeable and friendly Shyft staff understands that moving is stressful, particularly for people over 50 who may require additional assistance. AARP® Moving Services powered by Shyft offers a comprehensive and personalized service to AARP members planning a move.
Shyft relies on proprietary state-of-art technology to provide relocation solutions that meet your needs and budget. The whole process is smooth and streamlined. No need to research moving companies, ask for quotes, or have movers enter your home.
With the help of the highly accurate ShyftNext moving app, The Shyft representative (your dedicated Move Coach) assigned to you will create the inventory list, provide quotes from different professional movers, and oversee the relocation door-to-door.
You can rest assured that you will get competitive moving quotes and enjoy peace of mind knowing your possessions will be in good hands.
To start your stress-free relocation experience, download the free Shyft Next mobile app on your iPhone or Android device. Then schedule a video call with a Shyft representative, either online or by dialing 1-888-501-3181.
During the 30-minute video call, the Shyft representative (your dedicated Move Coach) will compile your moving inventory list and offer advice regarding your options and estimated costs. All you have to do is walk around your home and point your device's camera at the items you intend to take to your new home.
This inventory list is typically 95% accurate. When you receive it through the Shyft Next app, go through it carefully and add or remove items and services to make it 100% accurate.
The approved list then goes to the secure Shyft platform, where verified moving companies submit their best offers. This bidding process ensures competitive pricing for your move.
Shyft will present you with three or more top quotes from different moving companies. Select the one that fits your needs and budget. Once you accept a moving quote, the price is locked. There won’t be any extra fees. You will know exactly how much the move will cost you.
Whichever moving company you choose, your dedicated Move Coach will supervise the entire process to maintain consistent quality standards. Shyft is available 24/7 throughout the relocation.
AARP members who choose Shyft can enjoy a discount of up to $250 on every booked move.