Navigating the real estate market in Kansas City, you may encounter a situation where you’re managing two mortgages simultaneously. Whether this is a deliberate choice or a result of your initial home not yet being sold, shouldering the financial responsibility for two mortgages can become a costly undertaking.
There are some things you can do to lessen the burden, read below to learn more!
Anticipate and Prepare in Advance
Prioritize saving diligently. If you find yourself managing two mortgages, aim to accumulate a reserve equivalent to at least 3-6 months’ worth of expenses. This reserve should supplement your down payment, closing costs, and other fees tied to buying a new home. The process of moving and real estate transactions often entails unforeseen expenses, and preparing to handle two mortgages requires thorough planning.
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
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 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.
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!