I inherited my current home in September 2014. There is currently no mortgage on my property or any other associated debts. Is it possible to use my current home as collateral for the purchase of a new home? If so, what is the best process to go about this?

I am looking to find a new home and then sell my current home.

My concern, in the present market, is that I will find a great house but won't be able to sell my house soon enough to complete the purchase. So I am just trying to figure out what kind of options I may have.

  • Are you trying to end up with two homes? – Comptonburger Jun 8 '16 at 18:17
  • No. I am looking to find a new home and then sell my current home. – Amy C Jun 8 '16 at 18:21
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    I don't know anything about using a home as collateral but you definitely can't if you are selling it. Besides, selling your current home should give you enough cash for at least a good down payment, and you shouldn't need any collateral. – Comptonburger Jun 8 '16 at 18:24
  • My concern, in the present market, is that I will find a great house but won't be able to sell my house soon enough to complete the purchase. So I am just trying to figure out what kind of options I may have. – Amy C Jun 8 '16 at 18:25
  • I added these comments to the question – mhoran_psprep Jun 8 '16 at 18:39

Since you are in need of funds to close on a new home purchase you should be able to:

  • put your house on the market;
  • then make an offer on a new house with a contingency that your offer is subject to the sale of your home.

In this case, if the seller is willing to accept this contingency the settlement on the new house would occur the day of or shortly after your home for sale closes.

Of course, you could also take out a small equity loan on the home you own for the money to buy another but in this case, the payment on this small loan, property tax, homeowners insurance costs, will all be counted against your debt to income qualifying ratio.

Check with a local lender and they will let you know if you would qualify using this 2nd option.

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    What happens if the seller does not want to wait for your house to sell and there are other buyers, the OP may miss out on the house she wants. – Victor Jun 11 '16 at 0:01

If you haven't got the deposit for the new house you could get a small mortgage on the existing house for the deposit then borrow the 80% on the new house. Once you sell the existing house you pay off the small mortgage on it and can pay down part of the mortgage on the new house.

In Australia we have offset accounts which are linked to mortgages, so any money you put into the offset account reduces the interest on the mortgage similarly to you depositing the funds directly into the mortgage, except the funds are freely available to withdraw as the offset account is simply a savings account. So if you are in Australia you can do this with your mortgage on the new house.

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    @Brick - we don't know where the OP is from, but of course everyone from the USA just assumes everyone else is from the USA. – Victor Jun 9 '16 at 21:31
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    I didn't assume anything. Just adding a tidbit to your good answer for those who are form USA. – user32479 Jun 9 '16 at 23:14
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    @PeterK. - I know what bridging finance is - it is used for short term periods (in fact the link you provided has up to 6 months). However my answer provides an option if it take longer than 6 months to sell existing house. It might not even be the right time to sell so my answer gives option of holding property for a few years until selling conditions are better. So my use of the "small mortgage" may be a bridging loan but it doesn't have to be. So my answer gives the OP the option for her concerns about the current market where bridging finance may not be suitable. – Victor Jun 10 '16 at 23:46
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    @PeterK. - but thankyou for your downvote - even though it is you that is confused. My comment with Brick was his use of the US, not Bridging Loans, but my reason for not including the words Bridging Loan is due to their short term use. Someone can get a small mortgage on their property without it being a Bridging Loan, especially if that property has no existing finance on it. – Victor Jun 10 '16 at 23:56
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    @PeterK. - yes you got one thing right - you are confused ! – Victor Jun 11 '16 at 8:29

The instrument you are looking for is called a Bridge Loan or Bridging Loan. It's a loan made explicitly for the situation you are in. As such it's intended to be paid off very quickly, so you won't get early-payment penalties or anything like that. You would take out a Bridge Loan for the amount you want to make as a down payment, and a regular mortgage for the rest.

Bridge loans are typically higher interest rates than a regular mortgage, but their flexibility usually makes them worthwhile. Most banks and other mortgage providers can make one.

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I personally would sell the first home before buying a second, even if that means having to rent while you find a new home.

That advice comes from me once using bridge loan to buy a second home in a hot market, then being forced to make payments on both houses longer than I wanted while waiting for the first to sell. Once it was all over after six months, I swore I'd never do that again...

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Unfortunately, this doesn't help. The moment that you should the old house you'd have to repay that mortgage anyway. Just get a mortgage on the new house, and pay most or all of it off when the old house sells; that's what everyone else does.

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    If a bank agreed to a HELOC on house 1, couldn't the OP freely buy a second house up to that amount, end of story? If they sell house 1 later, the HELOC is settled. – user662852 Jun 8 '16 at 20:07
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    Aren't bridge loans for this very purpose, when one has the first house with all their equity and no new downpayment? – JTP - Apologise to Monica Jun 8 '16 at 20:56

The easiest thing you could do is take out a home equity loan on your existing home, use that money to make a downpayment on the new home, then when you sell your current one, pay off the home equity loan from the proceeds. This isn't a difficult thing to do.

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