Looking to Upgrade |
Buying in Hoboken > Looking to Upgrade |
| Your Current Situation
So you've outgrown your current home. Perhaps you're ready for a different lifestyle, need to accomodate your growing family, or maybe it's just time for a chance of scenery. Great! But it's not the first time you're buying a home, and financial conditions are different. You'll need to determine if you qualify to purchase a new home while carrying your existing mortgage. Perhaps you've decided to keep your existing home and rent it to tenants, which may be a smart move if the rental rates in the area are enough so you can cover your monthly payments. If this is the case, you will need to show proof of rental income to the lender (usually in the form of an executed lease) in order to qualify for a new mortgage. Nonetheless, you would own both homes and therefore carry two mortgages simultaneously. With Hoboken being such a strong rental market (much demand, high turnover), odds are you can get rental income that covers much, if not all, of your existing home costs. Bear in mind that, due to turnover and vacancy, lenders typically only factor in 70% of rental income when considering a loan application for a second home. With lending guidelines being more strict nowadays, it's best to speak to a mortgage specialist who can analyze your particular situation. Although not always possible, selling your home first may allow you to sell (and eventually buy) more comfortably without the pressure of one thing depending on the other. Consider the following:
The capital gains tax break: If you are selling an existing home, one point to consider is the tax ramification. If your current home has been your primary residence for more than two of the last five years, you will keep the first $250,000 of profit (if single) tax free, $500,000 if married. However, if you retain the property as a rental for more than two years, any profit will be subject to capital gains tax upon the sale. Similar to the condition above, except you're trying to sell and buy simultaneously and one thing depends on the other. The biggest hurdle is usually the mortgage loan, because you may not have enough cash on hand for a downpayment and are probably counting on the sale of your existing home for it. A common solution for this type of situation is a bridge loan. A bridge loan covers the gap between the point when a buyer closes on their new home and when their old house sells. For more on bridge loans, it's best to consult a mortgage professional. Anyone deciding to buy their next home should work with both a real estate professional and a certified mortgage planning specialist to see what would maximize their financial position. >> http://www.kiplinger.com/features/archives/2007/01/secondhome.html >> http://www.bankrate.com/brm/itax/Edit/tips/Stories/vacation_place.asp |
Financial conditions are different for second-time buyers.
Lenders typically consider only up to 70% of rental income.
A bridge loan covers the gap between selling and buying.