This is a question that I receive frequent from my clients. Unfortunately we don’t live in a perfect world where you one can orchestrate the move seamlessly. One way is to have the buyer rent your home, close with the proceeds from the sale of your home purchase your new apartment. This solution would save you from having to do a short term rental. This solution in reality is very difficult to pull off if your buyer is financing because they will need to close in 60 days in order to satisfy the mortgage agreement from their lender.
Here is the solution that I suggest to my clients in this kind of situation. Sell your home first and then move into a rental with a flexible lease where you can stay until you close on your new apartment.
If this solution doesn’t work for you if you haven’t found a buyer or have time constraints such as having to move to a larger apartment before your new baby arrives. In addition, you have found a deal on a new apartment that is too hard to pass up. Here is what you can do!
1. Coming up with the down payment – How do you come up a down payment when most of your cash is tied up in your first apartment? If your parents or a family member can gift a portion or the entire down payment then this is the way to go. You won’t pay taxes on the gift. The gift giver does however there are some exemptions up to certain amounts.
- Tap into some other assets- You can liquidate some of your stocks. Keep in mind that you will have to pay taxes and possible penalties. You could tap into your retirement account. Keep in mind that the government charges a 10% penalty fee for withdrawing from your retirement account and the cash you receive will be taxed just like regular income. If you are young and have many years until retirement then you could afford to take this risk if you have a very stable job. You could also borrow against your 401K however remember that if you don’t pay it back you pay taxes on it and if you lose your job then you need to pay it back right away.
- Bridge Loan – Not an option in NYC through conventional lenders because it is too risky.
2. Co-op Or Condo- Co-op boards are often wary of buyers who haven’t sold their first apartment. Often times the co-op board will want to see that the apartment is listed or a contract is signed to give them some assurance that your first apartment will be sold and that you will not be carrying two apartments. This may not be enough for some boards who will consider your financial position to be too weak.
Condos are an easier solution. The only concern of most condos is that you have enough post-closing reserves to pay the monthly common charges. They are not concerned about the source of your down payment.
3. Getting approved for a new mortgage when you already have one. If you need to apply for a new mortgage while you are still holding the mortgage on your present apartment then you will need to take these steps.
- The bank needs to know that your new apartment is going to be your primary residence because there is different loan –to- value ratios for primary residences versus secondary residences.
- Some banks want to see the listing agreement while others want a fully executed contract.
- You will need to prove that you can carry both mortgages. If that is not the case your loan commitment will be contingent on proof that you closed on your first apartment and paid back that loan. It is possible to close on one apartment in the morning and buy the other in the afternoon. However, the anxiety that scenario produces is probably not worth it.
Looking for more information or an evaluation of your moving situation? Contact me today!