When buying and selling real estate, you might find yourself having to carry two mortgages at once in Pittsburgh. Whether this is by choice or because your original home has not sold, having to be on the hook for TWO mortgages can be an expensive feat.
Below we offer some considerations for our readers to brainstorm to lessen the burden of carrying multiple properties at once.
You will want to save, save, save…. as much as you can. If you will be taking on the task of two mortgages, your goal should be to save up a reserve of at least 3-6 months. This is in addition to your down payment, closing costs and other fees associated with purchasing a new home. Moving and buying real estate tends to come with a lot of unexpected costs, and trying to float two mortgages on top of that is something you will need to properly plan for.
If you need more cash to fund your real estate ambitions, you have a few options, but do not 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. When you reduce the balance of your 401K, you are also reducing the amount of dividends being produced on that capital, so your investments there will be made using less volume until you pay back the loan in full. Your 401K provider will also charge you a flat rate to do this, so you will be charged a fee to borrow your own money!
- 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. This type of loan allows you to borrow from the equity you have built up in your existing home over a period of time.
It might sound a bit silly, and like additional work when you are fixing up another house, but you might be able to save money if you use the old house as a short term or vacation rental like VRBO or Airbnb while you are waiting for it to sell. In the meantime, find yourself a small, cost effective rental that you can use on a short term basis. In the right situation, it might even make sense to stay with family while you are fixing up the second home.
By no means are we saying this can not be done, but you might need to be flexible if financially, it just does not 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!