To Buy or Sell First?

If you already own a home and are looking for a new one, you’re faced with a challenging question: should you sell your current home before you buy your new one, or vice-versa? To help make this decision, consider the following three factors:

1) Market conditions. You may have heard terms such as "seller's" or "buyer's" market. However, when you sell and buy homes, you must consider the housing market for your given neighborhood, house style, and price. Work with a professional Realtor to get an idea of how long your home should sit on the market, and about how long it should take you to find what exactly you are looking for. Use online resources such as Realtor.com to see how common homes are that meet your criteria. 

2) Finances. Many people need the equity from selling their current home to put towards the down payment on their new home. So what do you do while transitioning? You could stay with friends or family, or temporarily move into a rental unit (this may require you to rent a storage unit, as well). Alternatively, you can rent your home from your buyers in order to give you more time. The rent-back term is only valid for a maximum of 60 days, as a longer lease would categorize the home as income property. Lenders may be able to help you by granting you a bridge loan. The drawback to selling your home before you buy another is that you may feel rushed if you are unable to find a home you like in a reasonable amount of time.

3) Risk Aversion. Would you rather be stuck with nowhere to live, or with two mortgages? Regardless, Realtor.com advises homeowners to have a backup plan—for example, an alternative source of income or a place to stay should you sell your home sooner than expected. 

FHA Loan Modifications Hurt Borrowers

On April 1^st of this year, the U.S. Department of Housing and Urban Development (HUD) raised the annual Mortgage Insurance Premium (MIP) by 10 basis points, hoping to strengthen the Federal Housing Administration (FHA) insurance fund and decease FHA’s market share. Moreover, as of July 3^rd, the annual premium no longer cancels at 78 percent loan to value (LTV).

Marianne Collins, executive director and COO of Ohio Mortgage Bankers Association, writes in In Contract magazine that these alterations may make FHA the “loan of last resort.” Monthly conventional Private Mortgage Insurance (PMI) doesn’t have an up-front premium the way FHA does. Additionally, PMI continues to drop off at 78 percent LTV.

A borrower with a 680 credit score and 3 percent down payment would pay much more for a FHA loan requiring a down payment of 3.5 percent than s/he would for conventional monthly private mortgage insurance. Conventional PMI will even be lower at a credit score of 660 and a 5 percent down payment. Due to the lower cost of conventional PMI when compared to FHA MIP, private mortgage insurance companies are “making a huge comeback.”

Collins adds that only borrowers in high risk situations (such as those with low credit scores and brief periods since foreclosures and bankruptcies) have a reason to consider FHA for their financing. This could lead to a high default rate, because higher credit scores are absent to balance out the portfolio. Finally, Collins argues that FHA should do the opposite of what it has implemented: it should reward good credit by offering an insurance premium lower than private mortgage insurance for borrowers with good credit. To view FHA loan requirements, click here. For an additional explanation of FHA mortgage insurance and its changes, watch the YouTube video below.