Finding the Perfect House at the Most Imperfect Time

Sometimes your dream home shows up before you’re financially ready to buy it. But what if there’s a way to make it work without selling your current home first?

A client recently called me with a dilemma.

They had found their dream home. The one they absolutely had to have.

There was just one problem.

Their current house wasn’t even on the market yet, and the money they needed to purchase the new home was tied up in the equity of the house they were still living in.

Sound familiar?

This is actually a fairly common situation, particularly for homeowners who have built substantial equity over the years but don’t have hundreds of thousands of dollars sitting in a savings account.

The question becomes: How do you buy the next house before selling the one you already own?

When Traditional Mortgage Financing Falls Short

We started by exploring conventional financing and even looked into portfolio lending options through regional banks.

Unfortunately, everything fell short.

The husband’s income, at least what we could document on paper, wasn’t enough to support the financial obligations involved in purchasing the next home while continuing to own their current one.

We also needed to account for the additional financing required to access the equity in their existing property.

Essentially, we needed to make the numbers work while they temporarily carried two homes and a bridge loan.

And that’s where things got interesting.

The Income We Almost Overlooked

During our conversations, his wife mentioned that she was a stay-at-home mom but did some accounting work on the side.

I asked how long she’d been doing that.

Several years.

Now we had something worth exploring.

Her tax returns didn’t reflect enough qualifying income to solve our problem using traditional financing. However, that didn’t necessarily mean her business wasn’t generating income.

We decided to analyze her bank statements.

And wouldn’t you know it?

There was enough qualifying income.

Just barely enough, but enough!

By combining her husband’s W-2 income with her qualifying income derived from a bank statement analysis, we were able to structure financing that supported the new home, the existing home, and the temporary bridge financing.

Two different income documentation methods. One mortgage solution.

That’s one of the things I appreciate about the mortgage products available today. Not every borrower fits neatly into the same underwriting box.

How We Made the Purchase Work

Once we had established sufficient qualifying income, we could move forward with the financing strategy.

We arranged a bridge loan against the equity in their current home, allowing them to access the money they needed without selling the property first.

That equity provided enough money to:

• Put 10% down on their dream home.

• Cover the closing costs associated with the purchase.

• Preserve the cash they had already accumulated in savings.

That last part was particularly important.

Rather than draining their savings to purchase the new home, they could retain that money as a financial cushion while carrying both properties.

They could purchase the house they loved and then focus on selling their existing home.

But there’s another side to this story that I think is equally important.

Just Because We Can Make the Numbers Work Doesn’t Mean We Should Ignore the Risks

As a mortgage lender, I love finding solutions.

I especially enjoy working with borrowers whose financial circumstances don’t fit the traditional mortgage guidelines.

But I also believe there’s a responsibility that comes with creative financing.

Sometimes, when we fall in love with a house, we start justifying everything.

We’ll sell our house quickly.

We’ll get the price we want.

We can manage the extra payments for a little while.

Everything will work out.

And hopefully, it does!

But what happens if it doesn’t?

When you’re buying a new home before selling your current one, you may temporarily be responsible for two mortgage payments, plus a bridge loan or other equity financing.

That’s a substantial financial commitment, especially when the new mortgage payment may already be considerably higher than the one you’re accustomed to paying.

Before moving forward, I encourage my clients to consider both the best-case and worst-case scenarios.

Seven Questions to Ask Before Buying a House Without Selling Yours First

1. How long can you realistically afford to carry both properties?

Not how long you hope you’ll need to. How long can you actually afford to?

If your current home takes six months to sell, can you comfortably manage the payments that entire time?

2. What does your Realtor believe your current home will sell for?

And perhaps more importantly, what would you need to price it at if you wanted to sell it quickly?

There’s a difference between what we hope our house is worth and what the market is willing to pay.

3. How much equity will you actually have left after selling?

Remember, if you’ve already borrowed against your home’s equity to purchase the next property, that money generally needs to be repaid when your current home sells.

You also need to account for real estate commissions, closing costs, outstanding liens, and any other expenses associated with selling.

Your estimated equity and your actual proceeds at closing may be two very different numbers.

4. What happens if your house doesn’t sell as quickly as expected?

Are you prepared to reduce the price?

Could you handle additional carrying costs?

What if the market changes while your house is listed?

5. How much cash will you have left after purchasing the new home?

I don’t love seeing borrowers completely exhaust their savings to purchase a property.

A healthy cash reserve becomes even more important when you’re temporarily responsible for multiple properties.

6. What happens if your income changes unexpectedly?

Job loss, reduced commissions, slower business revenue, or an unexpected medical expense can change a household’s financial picture quickly.

Could you still manage the obligations?

7. What if the new house needs an unexpected repair?

You may be buying your dream home, but that doesn’t mean the air conditioner knows it’s supposed to behave!

Owning two homes also means potentially being responsible for repairs, maintenance, taxes, insurance, and other expenses on both properties.

Creative Mortgage Financing Is a Wonderful Thing. Responsible Financing Is Even Better.

Today’s mortgage market offers financing solutions that many homebuyers don’t even realize exist.

Bank statement loans, bridge loans, portfolio lending, and other alternative financing programs can create opportunities for borrowers whose financial situations don’t fit traditional mortgage guidelines.

In this particular case, combining W-2 income with bank statement income allowed us to solve a problem that conventional financing alone couldn’t solve.

And the bridge loan allowed the family to access their existing equity without having to sell their home before purchasing the next one.

That’s pretty remarkable.

But I also think it’s important that we remember the lessons of 2008.

Creative mortgage financing isn’t inherently a bad thing. In fact, when used appropriately, it can be incredibly beneficial.

The problems arise when we become so focused on making a transaction happen that we lose sight of whether the financial obligations make sense for the people taking them on.

Getting approved for a mortgage and being comfortable with the mortgage are two different things.

My job isn’t simply to figure out how much money someone can borrow.

It’s to help them understand their options, evaluate the risks, and make an informed decision about what works for their family.

Sometimes the perfect house really does come along at the most imperfect time.

And sometimes, with the right financing strategy and a realistic plan, you can make it work.

Found Your Dream Home Before Selling Your Current One?

You may have more financing options than you realize.

Whether you’re self-employed, have substantial equity tied up in your current home, or simply don’t fit traditional mortgage guidelines, I’d be happy to review your situation and help you understand what’s possible.

This article is for educational purposes only. Loan approval, qualifying income, bridge financing, and available loan programs are subject to underwriting, investor guidelines, and individual borrower circumstances. Not all programs allow the combination of W-2 and bank statement income. The client scenario has been shared without identifying information.