Op-ed: Here are helpful tips to purchase that home without wrecking your finances
We often help our clients evaluate which option makes sense. Typically, a margin loan or pledging assets makes a lot of sense for our clients if they plan to pay off the loan in a short amount of time. However, we have seen situations where it made more sense to sell securities, such as when a client was in a low tax bracket.According to the NAR, 38% of buyers used the proceeds from selling a home for a down payment. One way to use those proceeds prior to selling is bridge financing.
Details of the arrangement such as monthly rent, who pays various utilities and expenses, etc., must all be negotiated in advance and often lenders won't allow the leaseback period to exceed 60 days. This is a fairly common strategy for those who need to sell but have not found their next home yet. After receiving the cash proceeds from selling your home, you may be able to make a significant one-time payment of principal towards your new mortgage and ask the lender to recast your loan. This process will recalculate your monthly payment based on the new mortgage balance effectively reducing your monthly payment and the amount of interest you will pay over the life of the loan.
It's key not to overextend yourself. Ever heard of the term, "house poor?" You don't want to find yourself short on cash and struggling to make multiple payments at once if you can't sell your current home for a while.
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