A Guide to Understanding Bridge Loans

Getting a bridge loan
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Buying a new home before you can sell your old one can present quite the financial conundrum. This is mostly because you have to come up with the cash for a new property when you don’t have access to the home equity you have already built up in your existing property. That’s where a bridge loan comes in.

What is a bridge loan?

Bridge loans promise to fill the gap or “provide a bridge” between your old residence and the one you hope to buy. They accomplish this by providing temporary financial assistance through short-term lending.

Unfortunately, bridge loans come with pitfalls, some of which can be costly or have long-term financial consequences. This guide will explain the good and the bad about bridge loans, how they work, and some alternative strategies.

How does a bridge loan work?

While bridge loans can come in different amounts and last for varying lengths of time, they are meant to be short-term tools. Generally speaking, bridge loans are temporary financing options intended to help real estate buyers secure initial funding that helps them transition from one property to the next.

Let’s say you found your dream home and need to buy it quickly, yet you haven’t had the time to prepare your current residence for sale, let alone sell it. A bridge loan would provide the short-term funding required to purchase the new home quickly, buying you time to get your current home ready for sale. Ideally, you would move into your new home, sell your old property, then pay off the loan.

Here are some additional details to consider with bridge loans:

  • Your current residence is used as collateral for the loan.
  • These loans may only be set up to last for a period of six to 12 months.
  • Interest rates are higher than those you can get for a traditional mortgage.
  • You need equity in your current home to qualify, usually at least 20 percent.

Also keep in mind that there are several ways to repay a bridge loan. You may be required to start making payments right away, or you may be able to wait several months. Make sure to read the terms and conditions of your loan so you know where your financial obligations begin and end.

Risks of taking out a bridge loan

Taking out a temporary loan so you can purchase a new home may sound ideal, but as with most financial products, the devil is in the details. While these loans can help in a pinch if you aren’t able to purchase a property through other means, there are notable disadvantages.

They can cost more than alternatives

David Reiss, a professor at Brooklyn Law School and the academic program director at the Center for Urban Business Entrepreneurship, says the biggest downside of these loans is the price tag. Because bridge loans are meant to work for the short term, lenders have a much shorter timeline for turning a profit. As a result, “they typically charge a few percentage points higher than what you would pay with home equity loans,” says Reiss. Not only that, but they come with closing costs that may be expensive, and can vary from loan to loan.

So, even if the loan is short-term, it will likely cost you more than borrowing the money through a traditional mortgage by selling your existing home first, or through other means.

You’re taking on more debt

Another inherent risk with bridge loans: You’re simply borrowing more money. “The loan is secured by your home, so you have another mortgage,” Reiss says. “If you don’t make payments, then you could face late fees and financial turmoil.”

You can’t predict when you’ll sell your home

And if you’re unable to sell your home and your new or old monthly mortgage payments are taking a big chunk of your income, you could have trouble meeting all your financial obligations.

Reiss offers one other scenario in which a bridge loan could spell financial trouble: if the real estate market sours.

“You might assume you’ll sell your home easily, but that isn’t always the case,” says Reiss. “Unexpected events can screw up your plans to sell your home, so if you end up carrying multiple mortgages, you could potentially end up in trouble.”

According to Reiss, taking out a bridge loan could easily leave you with three home loans — your old mortgage, your loan, and your new mortgage — if the housing market slumps inexplicably and you can’t sell.

“This may not be a problem temporarily, but it can cause financial havoc in the long run,” he says. “You’ll be stuck with the unexpected expense of carrying all these mortgages.”

Falling behind on payments can lead to foreclosure on your old home, your new property, or both.

Advantages of a bridge loan

Applicants who are well aware of the risks of this financial product may still benefit from choosing this option. There are notable advantages, Reiss says, especially for certain types of buyers.

They can give you an edge in competitive markets

Bridge loans are “the kind of loan you get when you need to move forward and you can’t do it any other way,” says Reiss. If you are absolutely dead-set on purchasing a property and struggling to make the financials work, then a bridge loan could truly save the day.

This is especially true in housing markets where homes are moving quickly, Reiss notes, since a bridge loan allows you to buy a new home without a sales contingency in the new contract. What this means is, you’re able to write an offer on a new property without requiring the sale of your old home before you can buy.

This can be quite advantageous “in a hot market where sellers are getting lots of offers and you’re competing against other buyers who are paying in cash or making offers without a contingency,” Reiss says.

Bridge loans may be more convenient than the alternatives

Reiss also says that, while there are other loan options to consider for buying a new home, they aren’t always feasible in the heat of the moment. If you wanted to purchase a new home before selling your old home and needed cash, you could consider borrowing against your 401(k) or taking out a home equity loan, for example.

Yes, these options may be cheaper than getting a bridge loan, Reiss acknowledges. The problem is, they both take time. Borrowing money from your 401(k) may take several weeks and plenty of back and forth with your employer or human resources department, and home equity loans can take months. Not only that, but it might be difficult to qualify for a home equity loan if your home is for sale, Reiss says.

“A home equity lender who catches wind of your intent to sell your home may not even loan you the money since it’s fairly likely you’ll pay off the home equity loan quickly, meaning they won’t turn a profit,” he says.

Bridge loans, on the other hand, could be more convenient and timely because you may be able to get one through your new mortgage lender.

Four good reasons to take out a bridge loan

With the listed advantages and disadvantages above in mind, there are plenty of reasons buyers will take on the risk of a bridge loan and use it to transition into a new home. Reasons consumers commonly take out bridge loans include:

1. You want to make an offer on a new home without a sales contingency to improve your chances of securing a deal.

The most important reason to get a bridge loan is if you want to buy a property so much that you don’t mind the added costs or risk. These loans let you make an offer without promising to sell your old home first.

2. You need cash for a down payment without accessing your home equity right away.

A bridge loan can help you borrow the money you need for a down payment. Once you sell your old home, you can use the equity and profit from the sale to pay off your loan.

3. You want to avoid PMI, or private mortgage insurance.

If most of your cash is locked up as equity in your current home, you may not have enough money to put down 20 percent on your new home and avoid PMI, or private mortgage insurance. A bridge loan may help you put down 20 percent and avoid the need for this costly insurance product.

“But you would need to net out the costs of the bridge loan against the PMI savings to see if it is worth it,” says Reiss. “And remember, once you have sold the first home, you could use the equity from that home to pay down the mortgage on your new home and get out of paying PMI.”

According to the Consumer Financial Protection Bureau (CFPB), you may have to order an appraisal to show you have at least 20 percent equity to get PMI taken off your new loan, and even then, it can take several months.

“So, we might be talking about six to 12 months of avoided PMI payments if you were planning on using the equity from your old home to pay down the mortgage on your new home,” says Reiss.

4. You’re building a new home.

A bridge loan can help you pay the upfront costs of building a new home when you aren’t yet prepared to sell your old one because you still need a place to live.

How to qualify for a bridge mortgage loan

Because bridge loans are offered through mortgage lenders, typically in conjunction with a new mortgage, the requirements to qualify are similar to getting a new home loan.
While requirements can vary from lender to lender, you commonly need to meet the following criteria for a bridge loan:

  • Excellent credit
  • A low debt-to-income ratio
  • Significant home equity of 20 percent or more

Typically, lenders will approve bridge loans at the value of 80 percent of both the borrower’s current mortgage and the proposed mortgage they are aiming to attain. Let’s say you’re selling a home worth $300,000 with the goal of buying a new property worth $500,000. In this example, across both loans, you could only borrow 80 percent of the combined property values, or $640,000.

If you don’t have enough equity or cash to meet these requirements — or if your credit isn’t good enough — you may not qualify for a bridge loan, even if you want one.

Fees and other fine print

Before you take out a bridge loan, it’s important to understand all the costs involved. Here are some fees and fine print you should look for and understand:

Fees

Since bridge loans vary widely from lender to lender, the fees involved — and the costs of those fees — can vary significantly as well. Common fees to look for include an origination fee that can be equal to 1 percent or more of your loan value. You will also likely be on the hook for closing costs for your loan, although the amount of those costs can be all over the map based on the terms and conditions included in your loan’s fine print. As example, Third Federal Savings and Loan out of Cleveland, Ohio, offers a bridge loan product with no prepayment penalties or appraisal fees, but with a $595 fee for closing costs. Borrowers may also be on the hook for documentary stamp taxes or state taxes, if applicable. Make sure to check your loan’s terms and conditions.

Prepayment penalties

While it’s unlikely your loan will include any prepayment penalties, you should read the terms and conditions to make sure.

Payoff terms and conditions

Because all bridge loans work differently, you need to be sure when your loan comes due, or when you need to start making payments. You may need to make payments right away, or you might have a few months of wiggle room. Because there are no set guidelines, these terms can vary dramatically among different lenders.

Tips to sell your home quickly and avoid a bridge loan

If you’re on the fence about getting a bridge loan because you’re worried about short-term costs or the added layer of risk, try to sell your home quickly instead. If you’re able to sell, you may be able to access your home’s equity and avoid a bridge loan altogether, while also eliminating the possibility of getting “stuck” with more than one home.

We spoke to several real estate professionals to get their tips for selling your home quickly. Here are their best tips for getting your home ready to sell in a short amount of time:

Tip #1: Do some quick outdoor cleanup and landscaping work, then try to make your home as neutral as possible.

“To get people inside, they need to like the outside of your house,” says Nancy Brook, a Realtor who sells properties with RE/MAX of Billings, Mont. “Trim trees and shrubs, treat weeds, and mow and trim lawns.”

You should also make sure that there’s no chipped or peeling paint, she recommends. “And if your home is anything but a neutral color, you should seriously consider painting it.”

Tip #2: Get rid of half your stuff (or more).

As Brooks notes, most real estate agents suggest that sellers pack up most of their personal items and remove them from the house when they’re trying to sell. This helps people declutter while also making their property more appealing to people who might be turned off by someone else’s personal photos and items.

“Pack up or get rid of rid of paperwork, knick-knacks, personal photos and collections,” says Brooks. “Any furniture that obstructs a walkway should be eliminated. Get rid of any unnecessary dishes, pots, pans and small appliances in your kitchen. All the excess gives a junky appearance.”

Tip #3: Deep-clean from top to bottom.

While cleaning seems like an obvious first step, it is often neglected, notes Trina Larson, RE/MAX Realtor and selling specialist from Potomac, Md.

“You would never purchase a dirty car or a dirty new jacket,” she says. “Get everything as clean as possible, and try to make your house look brand-new.”

Items on your to-clean list should include corners, edges of baseboards, light fixtures, windows inside and out, your home’s siding and anything that isn’t in pristine condition.

Tip #4: Get rid of off-putting smells.

If you want to sell quickly, your house should smell clean and inviting, Larson suggests. “Your first step is to remove every offensive odor,” she says.

Go through each room and take inventory of what you smell. “Pet urine is especially heinous, and there is only way to remove it,” she says. “You have to go in and replace the carpet where the accident happened. Although it might seem like an expensive task, it is worth every penny. No cooking or animal odors.”

Basic cleaning can also help remove smells. The cleaner your home, the fresher it will seem to potential buyers.

Bottom line: Is a bridge loan worth considering?

If you want to buy a home quickly and don’t have time to sell your home, a bridge loan could help. Likewise, bridge loans can be a good option for people who are moving or building a new home and need the capital to make the sale go through regardless of cost.

On the other hand, such loans may not be the best choice for consumers who don’t want to risk getting stuck with two homes and multiple payments. They’re also a poor choice for buyers who don’t want to pay any additional closing costs or interest payments to get in the home they want.

In the end, only you can decide if the risk of getting a bridge loan for your new home is an acceptable one.

The post A Guide to Understanding Bridge Loans appeared first on MagnifyMoney.

How to Determine If a No Closing Cost Refinance Is Right for You

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A home mortgage refinance doesn’t come cheaply, as homebuyers typically must pay thousands of dollars in closing costs and fees to finalize a loan. These expenses can seem endless as you get bills for everything from attorney fees to an appraisal to a loan origination fee. Closing costs vary by lender, loan amount and location, but in the end, they’re usually up to 3 percent of the home’s purchase price. For a $200,000 loan, that means closing costs of roughly $6,000.

For many homebuyers, these upfront costs put refinancing out of reach.

What is a no closing cost refinance?

A no closing cost refinance means that you refinance your home mortgage without paying thousands of dollars in upfront closing costs and fees to close the loan. But that “no” in the name can be confusing, because you’re not really avoiding that expense. While this process can save homebuyers money upfront, lenders work in closing costs elsewhere either by slightly raising interest rates or adding the closing costs to the balance of the loan.

How do I get one?

You can refinance your mortgage with no closing costs at banks, credit unions or other lenders. Standard qualifications for refinancing will apply, including a property value that exceeds the amount of the refinance and a credit score that is greater than lender minimums (usually more than 620). Lenders also typically expect your refinance payment and other debt payments to total less than 43 percent of your gross income.

Savings analysis: No closing cost refinance vs. regular refinance

No closing cost refinance doesn’t always result in savings. Homeowners who have a good idea how long they will stay in the house will be in the best position to decide whether refinancing without closing costs is a good idea.

Here is a comparison between a standard refinance and a no closing cost refinance where the lender slightly raises the interest rate to compensate for the lost closing costs. Loan officers will raise your interest rate based on daily market rates.

Regular refinance

No closing cost refinance

Mortgage balance

$200,000

$200,000

Closing costs

$4,800

None at loan closing

Refinance interest rate

3.5%

4.1%

Term

30 years

30 years

Monthly payment

$898

$966

Total cost of mortgage*

$323,312

$347,903

In this example, a homeowner who stays in his home for at least 30 years will save $68 per monthly payment and more than $24,500 over the life of the loan with a lower interest rate. The additional interest that comes with the no closing cost refinance loan far exceeds the $4,800 of closing costs with a regular refinance.

Another common way lenders will refinance a mortgage with no closing costs is to roll the costs into the balance of the loan. Here’s the same mortgage using this option.

Regular refinance

No closing cost refinance

Mortgage balance

$200,000

$204,800

Closing costs

$4,800

None at loan closing

Refinance interest rate

3.5%

3.5%

Term

30 years

30 years

Monthly payment

$898

$920

Total cost of mortgage*

$323,312

$331,072

The no closing cost refinance costs an extra $22 per month. If you stay in your home for the duration of the loan, the no closing cost refinance would add an additional $2,960 to your mortgage expenses (after accounting for the $4,800 you’d pay upfront for the regular refinance).

For homeowners who only plan to stay in their homes five years or fewer, however, refinancing with no closing costs could help them break even or come out ahead on closing costs. Here’s a breakdown.

Regular refinance

No closing cost refinance

Mortgage balance

$200,000

$200,000

Closing costs

$4,800

None at loan closing

Refinance interest rate

3.5%

4.1%

Terms

30 years

30 years

Remaining balance after five years

$179,394.15

$181,185.57

With a no closing cost refinance, you would pay about $1,790 more on a $200,000 mortgage if you got a regular refinance; however, you would have paid the $4,800 in closing costs upfront, meaning you’d save money in the long run with a no closing cost refinance (assuming you sell the house after five years).

Is a no closing cost refinance a good idea?

The upside

The biggest advantage of a no closing cost refinance is you do not have to come up with several thousand dollars in cash to close on your refinanced mortgage. Closing costs can add up quickly as you factor in an appraisal, loan origination fee, and other charges, and many buyers simply can’t afford them. A no-cost refinance doesn’t eliminate those costs, but it does spread them out into monthly payments, allowing you to pay for them over time.

The downside

Over the life of a loan, a refinance with no upfront closing costs can add up to a significantly more expensive choice than a traditional refinance. You can use a refinance calculator to help you figure out whether a no-cost refinance is worth it.

Is a no closing cost refinance right for you?

As you are thinking through whether a refinance with no closing costs is right for you, here are some questions to consider.

Will you qualify to refinance your mortgage?

Before applying, make sure your credit score is high enough to be approved for a refinance loan. You’ll also need to have sufficient equity in your home and a debt-to-income ratio of less than 43 percent, in most cases.

Will refinancing lower your monthly payment?

If your goal is to get a lower monthly mortgage payment through refinancing, a traditional refinance will likely be your best bet. A no closing cost refinance could also lower your monthly payment, though. Don’t forget to calculate in either the higher balance or higher interest rate you’ll have after the lender factors in closing costs. Before you agree to the refinance terms, be sure they will lower your monthly payment enough to be worthwhile.

How long do you plan to stay in your house?

If you are planning on selling your house in less than five years, a refinance with no closing costs almost always will save you money. You may have a higher monthly payment than a regular refinance, but if you get out of the mortgage after a few years, you likely will have spent less than if you had taken out a traditional refinance and paid closing costs.

If you plan to stay in your house indefinitely or longer than several years, a no closing cost refinance may be much more costly in the long run.

How to shop for mortgage refinance loans

To compare no closing cost refinance offers, visit financial institutions and talk with loan officers. They will look at current interest rates and your financial information to help you determine whether refinancing with no closing costs will work for you.

One advantage of no closing cost refinances is that they eliminate the closing costs and fees that can make loan-offer comparisons complicated. With quotes for no closing cost refinance mortgages in hand, you can easily compare interest rates. This allows mortgage shoppers to more effectively shop around and find the best deal.

What to look out for

As you should before agreeing to any loan terms, make sure you understand all costs involved. While a lender may not be charging closing costs when the loan is signed, there may be other fees and expenses that aren’t waived. Ask about fees and what they include. These could be:

  • Government transfer taxes
  • Homeowners insurance
  • Escrow funds

Some no closing cost refinance loans come with prepayment penalties to steer borrowers away from refinancing the loan quickly for a lower interest rate. Check the rules of the loan to make sure there are no prepayment penalties.

Where to shop for no closing cost loans

Traditional lenders, such as banks and credit unions, as well as other private lenders, may offer a refinance mortgage with no closing costs. You can compare current refinance rates with the online comparison tool by LendingTree, our parent company, but you’ll need to talk to a mortgage loan officer to determine what your refinance with no closing costs would look like.

If you have kept up with your mortgage payments but have little or no equity in your home to qualify for refinancing your mortgage, the federal Home Affordable Refinance Program (HARP) can help. If you qualify, you could refinance with a low interest rate and favorable terms. HARP also does not require a minimum credit score and will roll closing costs into the new loan.

Beware of closing cost scams

While refinancing your mortgage, you may receive emails that appear to be from your lender asking you to wire them closing costs. Do not respond, the Federal Trade Commission (FTC) warns, as this is a phishing scam trying to get your personal information and empty your bank account. This scam begins when hackers break into homebuyers’ or real estate professionals’ email accounts and steal information about real estate transactions they are working on.

You should never send financial information by email, the FTC warns.

How to save on closing costs

If you’re worried upfront closing costs will make refinancing your mortgage too expensive, shop around. Closing costs can vary widely by lender and location, and remember that they’re negotiable. The more options you research, the better you will be able to choose the deal that allows you to pay the least for closing costs.

The post How to Determine If a No Closing Cost Refinance Is Right for You appeared first on MagnifyMoney.

What Determines the Total Cost of Your Mortgage

Buying a home? Here's what determines mortgage rates.

Costs to secure financing are a big factor when it comes to getting a mortgage. And knowing why your loan costs a certain amount is critical to being able to understand how lenders price loans in the marketplace. People tend to think of interest rates when it comes to mortgages, but that’s not the only cost to consider.

Here’s what you need to know about the things that determine your mortgage fees.

Do I Really Have to Pay Mortgage Fees?

Remember, all loans come with fees and all fees are paid for by someone. You can have what seems like the perfect loan and there will still be fees, like closing costs. There are two situations where you might not have to pay all of the closing costs. The first way is for a seller to credit the closings cost when you purchase your home. The second is to select an interest rate that generates an overage, or credit, which is applied to your loan fees.

For the purpose of this discussion, we’ll focus on the factors that determine your interest rate and any points associated with that rate.

Two factors that determine your loan fees above anything else are your loan-to-value (LTV) and your credit score. (Not sure where you stand? You can view two of your credit scores for free on Credit.com.) Your loan-to-value (LTV) is the difference between the loan amount you are seeking and the value of your home. Your credit score is particularly important to how your loan is priced because it determines the risk associated with your loan.

The following things play out in terms of how your loan is priced:

High Loan-to-Value (LTV) Loans

Loan adjustments start at 65% LTV, in increments of 5%, all the way up to 95% LTV on conventional loans. For example, if you’re looking for a conventional mortgage and you have 20% equity in the home — 80% LTV — your loan will be priced worse than someone who has 30% equity and 70% LTV.

Your Credit Score

Your credit score is the barometer the lender uses to gauge your potential for default. The higher your credit score, the less likely you are to default, and the less risk the lender assumes by granting you that mortgage. When it comes to mortgages, credit scores generally break down like this:

  • 740+ — Excellent
  • 720-739 — Great
  • 700-719 — Good
  • 680-699 — Fair
  • 620-679 — Poor

Occupancy

If the property you are looking to purchase is a second home or a rental property, you might end up paying an additional pricing adjustment in the origination of your mortgage loan. Rental properties are especially known for this pricing adjustment. This change can influence an interest rate by as much as .375 compared to a primary home loan.

Property Type

If your property is a condominium and/or a multi-family property, you can generally expect to pay more. Specifically, this is because both types of properties contain more risk to both Fannie Mae and Freddie Mac than a single-family home.

Condominiums also have rules and regulations that single-family homes do not. A multi-family property, such as a duplex, is more risky because there is another unit involved and more potential liability compared to a single-family home.

Some General Guidelines

If you are looking for a mortgage with a high loan-to-value and a great credit score such as a 95% financing … then you can expect to be paying interest rate of .375 to .5 more than what you might see advertised online or in print.

If you are financing a triplex as either an owner or a non-owner-occupied transaction … then, if the property is a primary home, you can expect to pay about .5% in the form of a discount point based on the rate chosen.

If you will be renting your property out for investment purposes … then you can expect to pay as much as .5% more in the interest rate, with up to one discount point based on the rate chosen.

Final Thoughts

The moral of the story is that not all mortgage rates and pricing are created equal. If you are pricing out a loan with a lender and your scenario falls into any one or more of the intricacies outlined in this post, you can expect to pay more for the type of financing you are seeking.

Image: courtneyk

The post What Determines the Total Cost of Your Mortgage appeared first on Credit.com.

Here’s What It Costs to Sell a House

Costs-to-Sell-a-House

If you’re in the process of moving out of your current house and into a new one, you may have thought a lot about the costs involved with buying a house. After all, there are many. But as you’re considering your moving budget, it’s important that you remember to factor in what it costs to sell a house. 

According to Carlos Jaime, owner of CTC Brokers & Associates in Corona, California, these expenses can include things like paying the escrow company, title insurance, transfer taxes, home warranty plans, HOA documents, possible credits to the buyer as well as repairs that may need to be made before closing on the house (more on some of these later).

But, Jaime said, real estate commission is the biggest expense a homeowner faces when selling their home. He said these commissions often “range from 2.50% to 7% of the sales price,” and because it is such a major expense, he emphasized the importance of having a good real estate agent helping you during the sale of your home.

“Do your homework and interview two to three agents, not just the local rock star,” Jaime said. “Find an agent that’s experienced, professional and isn’t charging you an arm and leg.”

“The more you pay in commission, the more you must sell for just to recoup the premium you’re paying to a high-commission agent,” Jaime added. “Focus on your bottom line and not just the sales price that an agent is promising you.”

Getting Your House Ready

Before your house is actually sold, it’s a good idea to spruce it up a bit. After all, as a potential buyer yourself, you wouldn’t be interested in a home that looked, well, blah, would you? Of course not.

Keep in mind, this will be another expense in your process, but it can also be factored into your asking price, if you so choose. But where do you start?

“Have [your real estate agent] bring in a home stager for a consultation on what you can do yourself to spruce up the visual appeal of your home,” Jaime said.

Things to consider include painting your home (both inside and out), getting the windows professionally cleaned, landscaping and repairing any problem areas (think scuffs in the floor, broken fixtures, etc.) in and around the home.

After you’ve done this, you may consider using a stager to organize, declutter, decorate and furnish your home to make it look as appealing as possible for any showings your agent lines up.

Arranging Home Inspections

Jaime suggested having an agent “arrange a pre-listing home inspection and pre-listing termite inspection to avoid surprises down the line.” For example, if your inspector discovers standing water that damaged the foundation, you can take action before putting the house on the market. Jaime said that knowing these details in advance can help you decide what your best plan moving forward is, whether you fix the problem, sell the home “as is,” adjust the price or something else.

Getting Title Insurance

Sometimes the homebuyer is the one who covers this cost, but it can be seen as a sign of good faith if the seller purchases the policy. This way, they are showing the buyer that they have a clear title to the home, such as not having a lien or other problem. (Note: If you have a lien on your home, you’ll have to also pay that off before selling your home.) Either way, it doesn’t hurt to allocate this to your home sale budget.

Paying off Your Mortgage

Just because you’re packing up and heading off to a new home doesn’t mean your responsibility for the mortgage on the old house will stay behind. Read over your mortgage agreement to figure out what sort of prepayment penalty fees you may be faced with (meaning you may get charged a penalty for paying more at one time than what your mortgage terms specified) as well as any interest charges. Keep this in mind as you consider what houses you will be able to afford to buy once you’ve sold your home. (You can also use this tool to figure out how much home you can really afford.)

Other Potential Bills

If you’re living in your new house already, you may have to pay two sets of bills for a while. Sure, you can shut off some of your services at the old place, like cable and internet, but you’ll likely still want to keep the power on and the home heated/cooled so it’s comfortable when potential new owners come by. It might also be wise to check your homeowner’s insurance policy, or speak with your agent, to find out if you need different coverage while the home is left unoccupied. Beyond that, consider the costs of getting everything out of your old home and into your new one. (Pro tip: If you’re staying nearby, ask your friends or family to help you move. Paying for dinner and drinks for the group can be a lot less than paying for a team of movers or rental truck.)

Paying for These Expenses

As you think about the expenses you’ll have both in buying and selling a home, it’s a good idea to consider how you’ll pay for them. If you have to put any of your selling expenses on a credit card, ideally you’ll want to pay those statements off in full each month, as doing so won’t harm your credit scores. However, if you are unable to do so, make sure you’re paying off what you can each month and doing so on time (payment history makes up the largest portion of your credit scores). You can use this tool to figure out what your lifetime cost of debt could be.

And if you’re still searching for the right home to buy next, it’s a good idea to review your credit reports (which you can do for free once each year by visiting AnnualCreditReport.com). Knowing where your credit stands will give you a good idea of the terms and conditions you may qualify for on your mortgage. If you discover your scores aren’t quite where you’d like them to be, you can take steps to repair them, like paying down debts, repairing any errors on your reports and limiting inquiries while your scores rebound. You can monitor the effects these are having on your credit by viewing two of your credit scores for free, updated each month, on Credit.com.

Image: Highwaystarz-Photography

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