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I currently own a home and am looking to buy another. I will be buying the second home before I sell my current home and the seller of the second home refuses to do contingent offers so I will be buying the second before I sell my current. I can currently put around $30-50k of my savings into a down payment as is, but I should get around $250-$300k from the sale of my current home (after fees and paying back the rest of the mortgage).

I feel like the ideal scenario would be to put as much of that as possible into a down payment on the second house in order to reduce my overall loan amount and therefore reduce as much interest as possible but I admittedly don't really understand how the interest works that well.

I will be getting a VA loan so from what I understand the lender is not allowed to charge an early payment fee, is there some sort of fine print to this that I should be aware of?

I have some family that I could probably borrow some money from interest free which feels kind of wrong to me but I am pretty confident that I will be able to sell my current house quickly and pay them off quickly when I do. Would that even be worth it if I can just put all that money toward the principle as soon as I sell the house anyway?

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    Interest is charged on the outstanding balance, not the original balance. The relative difference in the interest you'll pay each month on a $300k mortgage and a $320k mortgage, for example, isn't terribly significant. I wouldn't worry about it if you are concerned about short-term liquidity until your first house sells.
    – chepner
    Jan 15 at 16:11
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    There are two ways of looking at this question: what's the mathematically least amount of interest you can pay, and what's the practical effect of whatever interest you do pay on your budget and future financial planning? I'm of the opinion that the former isn't worth worrying about. Reduce the interest as much as you can comfortably do so, but not more.
    – chepner
    Jan 15 at 16:14
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Some lenders offer a bridge loan for just this situation. This is for people who know that they have enough equity in the old house, but can't get to it until they sell the old place.

They get a normal 30 year mortgage, and a bridge loan that they pay off right after they get the money from the settlement of the old house.

You will have to research the costs, and other rules, but they do exist and have been used for a long time.

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  • Thanks but I imagine this would just introduce even more interest into the situation. I don't need more money for a down payment and it looks like it would be impossible to get a lower interest rate from a bridge loan than I could get from a mortgage loan.
    – jesse_b
    Jan 15 at 15:31

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