A Quick Guide for Buying a New Home
You have bought your first home. It's nice and comfortable, but with time you have out grown it. And now you are looking for a bigger home. A new home to suit your needs and accommodate your growing family! What do you do?
There are different key elements that you need to take into consideration before buying a new home in Orange County, California:
Your Financial Situation
Assuming that you are borrowing to buy a new home - which is a reasonable assumption - that means more debt load on your credit profile and inability to borrow for other major purchases (like a new car). Taking on a new mortgage for buying a new home in Orange County, California not only affects your credit, but also increases other expenses that you may have not accounted for such as home improvement, furniture and upgrades. Make sure you have a reliable career and at least 6 months reserve when carrying on several mortgages.
Sell or Refinance your Previous Home
If you have equity in your first home, you can either sell it or refinance it to buy a bigger one. Your best option is to sell it and buy a new home in Orange County, California.
If you decide to refinance and get cash, you can use proceeds from refinance towards the down payment for the new mortgage loan. This way you can keep your reserves and savings for rainy days.
If rates are better than what you currently have on your first home loan, your best option is to refinance your first home's mortgage loan into a lower mortgage interest rate, which in turn will reduce your mortgage payment and make it easy to afford a new mortgage for buying a new home in Orange County, California.
Get a Renter
Whether your refinance to reduce your rate and terms of your mortgage or get cash out of your home, you're obviously keeping your home to rent it out. A renter could cover your mortgage payment for buying a new home while you capitalize on equity in your previous home.
Do Not Short-Sale
If you have negative equity, you may be advised to short-sale the previous house. Some may also advise you to miss a mortgage payment or two in order to qualify for a short sale. We encourage you not to do so. First, you should never miss a mortgage payment - that is if you are able to afford it! Second, late mortgage payments and short-sale will have negative impacts and adverse effects on your credit history. That being said, your other option is to rent out your current home and get pre-approved for a new affordable mortgage to buy a new home.
What if you can't afford having both mortgages? If you are unable to sell your home or rent it out, you have the option of offering a rent-to-own, also called lease-to-own. A rent-to-own agreement will require the prospective renter or new buyer in this case to pay monthly rent to you - that is agreed upon by both parties - with a portion of that payment going towards the down payment, closing costs and the new mortgage at the future purchase settlement date as agreed upon. The rent-to-own agreement usually lasts two to five years from date of execution. Each month of rent that new tenant pays is an income to you the seller and the other portion goes to the lender to cover costs of the new loan to eventually sell your home.
Rent-to-own has great advantages! You will be relieved from having to pay two mortgages, and in a slow housing market with many new homes in Orange County for sale, this would be your best option. And then, you can buy a new home in Orange County, California or Georgia.