When buying and selling real estate, you might find yourself having to carry two mortgages at once in Fort Myers. Whether this is by choice or because your original home hasn’t sold, having to be on the hook for TWO mortgages can be an expensive feat.
There are some things you can do to lessen the burden, read below to learn more!
Plan Ahead as Much As Possible
When gearing up to handle two mortgages, it’s vital to focus on saving diligently. Strive to accumulate a reserve fund equal to at least 3-6 months’ worth of expenses. This reserve should supplement your down payment, closing costs, and any other fees linked to buying a new home. The transition of moving and purchasing real estate frequently involves unforeseen expenses, and effectively managing two mortgages demands careful preparation. By steadfastly saving and establishing a financial safety net, you’ll enhance your ability to navigate the financial obligations and unexpected challenges that may emerge during this transitional phase.
Bridge Loans, 401k Advances & HELOC
If you need more cash to fund your real estate ambitions, you have a few options, but don’t rush into any of these without running all of the numbers. Speak with a trusted advisor before borrowing additional funds to float two mortgages.
- Bridge Loans: A bridge loan will, in essence, bridge the gap between the sale price of a new home, and your new mortgage. Typically, you do not have to begin making payments right away. This might make sense in some situations, but you can expect much higher interest rates than with a typical mortgage. In addition, you can expect lots of fees and costs: Administrative, escrow, title, notary, recording, appraisal, wirings fees, etc.
- 401k Advance: Taking out an advance on your 401k should always be done with caution. In some cases, you will be able to take out a loan against the 401k, which means you will be paying yourself back instead of a bank. Taking out an advance will incur severe tax penalties in addition to early withdrawal fees from your 401k administrator.
- HELOC: Or a home equity line of credit. This works similarly to a bridge loan, but at a lower rate. If you have equity in your home, you might be able to secure a line of credit against it. This means you will be able to borrow as needed, up to a certain amount. You can also look into a standard home equity loan, which will provide you funds in one lump sum.
Rent the Old Home
Although it might initially feel like additional work, contemplating the use of your old house as a short-term or vacation rental while awaiting its sale can actually be a money-saving strategy. By earning rental income from the old house, you can offset a portion of the carrying costs linked with owning two properties. Meanwhile, you can seek out a modest, budget-friendly rental for yourself on a short-term basis. Alternatively, staying with family during renovations on the second home could also be a feasible option in certain scenarios. Ultimately, these tactics can ease financial pressure during the transition period and streamline the management of multiple properties.
You Could Reconsider
By no means are we saying this can’t be done, but you might need to be flexible if financially, it just doesn’t make sense. Selling your home first, and staying in a short-term rental might save you a good chunk of cash. Run your numbers before you float two mortgages to make sure it is really worth it!