It’s no secret that the housing market is booming right now. The median home value in the United States has increased in recent years. And if you’re one of the lucky homeowners who already own a property, you’ve likely seen your home’s value increase. But what happens when you want to buy a new house and your current one is already mortgaged? Do you have to sell your current home to buy the new one? Fortunately, that’s not always necessary. Depending on your financial situation, you may be able to negotiate a better deal on your mortgage without having to sell your home first. Here are eight tips for how to do just that.
1. Refinancing Your Mortgage
If you’re happy with your current home but looking to buy a new one, you may be able to take advantage of low-interest rates by refinancing your mortgage. This means taking out a new loan with a lower interest rate than your current mortgage. Doing so can save you hundreds – or even thousands – of dollars over the life of your loan. You’ll need to have good credit to qualify for home refi, and depending on how much equity you have in your home, you may also have to pay private mortgage insurance (PMI). For example, if you’re currently paying 6% interest on a 30-year mortgage and refinance to 4%, you could save more than $200 per month.
2. Get a Pre-Approved Mortgage
Getting pre-approved for a mortgage can give you some leverage in negotiations if you’re not looking to refinance but still want to buy a new home. By having a pre-approval letter from a lender, you’ll be in a better position to negotiate the price of your new home since the seller will know that you’re already approved for financing. This can be especially helpful if you’re competing against other buyers who don’t have pre-approval. In addition, being pre-approved can help you know exactly how much house you can afford so that you don’t get in over your head.
3. Get a Mortgage with a Lower Down Payment
If you’re not looking to refinance and can’t get pre-approved for a mortgage, another option is to try to get a loan with a lower down payment. This could involve getting an FHA loan or other type of government-backed mortgage. With an FHA loan, for example, you could put as little as 3.5% down on a new home (as long as it meets certain criteria). That’s much lower than the 20% down payment that’s typically required by conventional lenders. And if you don’t have the cash for even a 3.5% down payment, there are programs available that can help you come up with the money.
4. Use a Home Equity Loan
If you have equity in your current home, you may be able to use it as collateral for a loan to help with the down payment on your new home. This is called a home equity loan. How much money you can borrow will depend on how much equity you have and the value of your home. But if you have good credit and are financially stable, this could be a way to get the cash you need for a down payment without having to sell your current home first. Additionally, the interest on a home equity loan is often tax-deductible.
5. Consider a Cash-Out Refinance
If you’re looking to buy a new home and don’t want to sell your current one, another option is to do a cash-out refinance. This type of refinancing allows you to take out a new loan that’s bigger than your current mortgage and use the extra cash to make the down payment on your new home. So, if you currently have a $200,000 mortgage and refinance it for $250,000, you could use the extra $50,000 to help with the down payment on your new place. Just keep in mind that this will increase your monthly payments since you’ll be borrowing more money.
6. Get a Mortgage with a Higher Interest Rate
If you’re not able to get a lower interest rate on your mortgage, another option is to try to negotiate for a higher rate. This may sound counterintuitive, but hear us out. If you’re able to get a higher interest rate, you’ll likely be able to get a bigger loan – which means you’ll have more money for a down payment. And while your monthly payments will be higher, the extra cash could help you qualify for a more expensive home. Just make sure you run the numbers on a free online mortgage calculator first to see if this makes sense for your financial situation. It’s important to be able to keep up with repayments as otherwise, your home is at risk.
7. Ask the Seller to Pay Your Closing Costs
When you’re buying a new home, there are a lot of costs involved – from the down payment to inspections to appraisals. And while you can’t negotiate every cost, one that’s often negotiable is closing costs. This is the fee charged by the lender to cover the cost of processing your loan. It typically ranges from 2% to 5% of the loan amount. So, on a $200,000 mortgage, your closing costs could be as much as $10,000. But if you’re able to get the seller to pay them, that’s one less thing you’ll have to come up with out of pocket.
8. Ask for a Credit for Repairs
If you’re buying an older home, it will likely need some repairs or updates. And while you can’t usually negotiate the price of the home itself, you may be able to get a credit from the seller to put towards the cost of these repairs. This is especially common if there are major problems with the home that need to be fixed, such as a leaky roof or outdated electrical system.
There are a few things you can do to try to get a better deal on your mortgage. You can try to negotiate with the lender for a lower interest rate, a higher loan amount, or a credit for repairs. You can also look into getting a loan with a lower down payment or using equity from your current home to help with the down payment on your new home. And finally, you can ask the seller to pay your closing costs. By doing some research and being prepared to negotiate, you may be able to save yourself some money on your mortgage.
Also as there are so many fees involved at the front and on repayment it is essential to understand the APR when comparing mortgages and not the interest rate.