4 ways to get into a bigger home

Your family needs a bigger home, but you feel stuck.  You have a great income, but due to the reduced equity in your current home and the demand for a higher down payment on your next purchase, moving up seems impossible.  Here are 4 possible solutions that could help, depending on your situation:

1) Assume the seller’s loan (take over their terms and payments and put into your name).

pros:  Most traditional home loans are unassumable, but these days banks are more willing than ever to avoid foreclosing on additional homes.   If the home is in risk of default or is already on the path toward foreclosure, they MAY be willing to have you assume the loan, even if your down payment is smaller.  This could allow you to get a great price on a home and possibly avoid a 20% down payment.

cons:  Could take some time to put this deal together, or you may do a lot of work and find out it’s not possible.  Therefore, you will more than likely have to sell your place and move into a rental as a temporary solution while you secure your next property.  The seller’s loan may have a higher interest rate than a new loan would have and you might not be able to refinance until you have increased your equity in the home.

 

 2) Buy a fixer upper, negotiate as many repairs as possible, and get a seller buy-down on your interest rate.

pros:  You could potentially buy a bigger home for the same price as your current home.  The seller buy-down will reduce your interest rate so that it’s easier to save for larger improvements and remodeling.

cons:  Not everyone is cut out to do a remodel.  It is time-consuming and there can be hidden pitfalls and problems that end up costing you more money than you thought.  Always get the opinion of a contractor you trust before making an offer (or removing contingencies) on a fixer upper.

 

3) Borrow from your 401k. (Note: consult with HR and your tax advisor prior to making this decision)

pros:  Provides you with extra cash, and you pay yourself interest, not your bank!

cons:  If you get laid off or change jobs, you may have to pay back your loan in full or suffer tax consequences.  Make sure you consult with your HR department to be clear on the rules before you take money out of your 401k.

 

4) Purchase a lease-option to buy

pros: Purchasing an option to buy the home at a future date for an agreed-upon price and then leasing it could be one way to get into your new home while you work on building the down payment to buy it.  Many owners will put a portion of your rent toward the down-payment later.  This all needs to be spelled out in the agreement.

cons:  Many people get into lease-options with the best of intentions, but never end up being able to buy the home because they couldn’t save enough money or repair their credit enough to make it possible.  You need to be VERY CLEAR about what you will have to do in order to buy this home.  Speak to a good financial planner about monthly goals that will be required to execute the purchase.  Otherwise, you will have been paying really high rent for no good reason.

Please note that these are all non-standard methods of home purchase (especially numbers 1, 3, and 4) and you must do your homework.  I cannot guarantee that these techniques will work in every situation or be financially advisable given your unique financial situation, so consult with your Realtor, CPA, Real Estate Attorney as appropriate before making any decisions.