When buying and selling real estate, you might find yourself having to carry two mortgages at once in New York. Whether this is by choice or because your original home hasn’t sold, having to be on the hook for TWO mortgages can be an expensive feat.
There are some things you can do to lessen the burden, read below to learn more!
Plan Ahead as Much As Possible
You will want to save, save, save…. as much as you can. If you will be taking on the task of two mortgages, your goal should be to save up a reserve of at least 3-6 months. This is in addition to your down payment, closing costs and other fees associated with purchasing a new home. Moving and buying real estate tends to come with a lot of unexpected costs, and trying to float two mortgages on top of that is something you will need to properly plan for.
Bridge Loans, 401k Advances & HELOC
If you need more cash to fund your real estate ambitions, you have a few options, but don’t rush into any of these without running all of the numbers. Speak with a trusted advisor before borrowing additional funds to float two mortgages.
- Bridge Loans: A bridge loan will, in essence, bridge the gap between the sale price of a new home, and your new mortgage. Typically, you do not have to begin making payments right away. This might make sense in some situations, but you can expect much higher interest rates than with a typical mortgage. In addition, you can expect lots of fees and costs: Administrative, escrow, title, notary, recording, appraisal, wirings fees, etc.
- 401k Advance: Taking out an advance on your 401k should always be done with caution. In some cases, you will be able to take out a loan against the 401k, which means you will be paying yourself back instead of a bank. Taking out an advance will incur severe tax penalties in addition to early withdrawal fees from your 401k administrator.
- HELOC: Or a home equity line of credit. This works similarly to a bridge loan, but at a lower rate. If you have equity in your home, you might be able to secure a line of credit against it. This means you will be able to borrow as needed, up to a certain amount. You can also look into a standard home equity loan, which will provide you funds in one lump sum.
Rent the Old Home
It might sound a bit silly, and like additional work when you are fixing up another house, but you might be able to save money if you use the old house as a short term or vacation rental while you are waiting for it to sell. In the meantime, find yourself a small, cost effective rental that you can use on a short term basis. In the right situation, it might even make sense to stay with family while you are fixing up the second home.
You Could Reconsider
By no means are we saying this can’t be done, but you might need to be flexible if financially, it just doesn’t make sense. Selling your home first, and staying in a short-term rental might save you a good chunk of cash. Run your numbers before you float two mortgages to make sure it is really worth it!