When a home buyer is buying another home before selling an existing home, two common ways to find the down payment for the move-up home is through financing either a bridge loan or a home equity loan (or home equity line of credit). Generally, a home equity loan is less expensive, but bridge loans contain more benefits for some borrowers. In addition, many lenders will not lend on a home equity loan if the home is on the market.
Bridge loans are temporary loans that bridge the gap between the sales price of a new home and a home buyer's new mortgage, in the event the buyer's home has not yet sold. The bridge loan is secured to the buyer's existing home. The funds from the bridge loan are then used as a down payment on the move-up home.
Some lenders who make conforming loans exclude the bridge loan payment for qualifying purposes. This means the borrower is qualified to buy the move-up home by adding together the existing loan payment, if any, on the buyer's existing home to the new mortgage payment of the move-up home.
Some things to keep in mind are: Bridge loans cost more than home equity loans; Buyers will be qualified by the lender to own two homes and many will not meet this requirement; Making two mortgage payments, plus accruing interest on a bridge loan, could cause stress.
I would suggest contacting a mortgage consultant to discuss your options and see what you can qualify for before you begin your search and fall in love with a home. Find out what would suit your budget the best and find a person that has the heart of a teacher. You want your home to be a blessing not a burden. Please feel free to contact me for any other questions!