Question about Mortgage Deposits?

Question

My partner and I are currently homeowners on our first home, but are looking to move house. We don't have much in the way of savings, but we do have good equity in our current house.

If we sell our current house at market rates, we stand to make around £23,000 (after the bank's been paid back) which would work nicely as a deposit. But, how does it work?

Would we have to sell our current home first, and THEN put an offer in on the second house? Because the only money we have for a deposit is tied up in the equity of our current home. I’m so confused. :-(

Answer 1

You do have to realise your equity before you can pay anyone for a new property...but the way it works is that you work on the assumption that your equity will be available to you.

Set up your next property as though the equity you are expecting will come through and pray that it is true! It's what the rest of us do!!

Answer 2

Until a few years ago the banks had all sorts of incentives and lower deposits. The problem is, if prices fall even slightly the house ends up being worth less than the outstanding loan amount - ie the owner is in negative equity. This means that people cannot move, and if they can't meet the loan repayments there is no way to repay the lender. If the buyer has had to put hardly anything down there is no real incentive for them to fight for the house, they can just walk away with no real penalty. From the banks' point of view first time buyers are the biggest risk, because they have no history of mortgage repayments. Frankly, I would be surprised if he could get a loan with a 10% deposit. Recent figures showed that the average for first time buyers is 25%.

Answer 3

Many people look to buy a new home using the proceeds from their current home.

You need a plan that includes when you want to move, and where you want to move, and how much you can spend, using some of the equity from your home for a down payment and closing costs.

Since your home has not yet sold, we don't know how much you will walk away with, in pocket. So, make a conservative estimate on your profits, take that figure to your lender, and see what you qualify for (how much house you can buy), based on your income, expenses, credit rating, etc.

Once you have a budget, and a timeframe - find a realtor who is familiar with your local real estate picture (buyer or sellers market?) and the time it takes to sell a house, and how much inventory is available for you to select from, and what to do if you find something you like before your house has sold - in other words, what is the current strength of offers contingent on the sale of your own property first.

Make a plan and work your plan. You'll feel more confident and less confused with a comfortable structure and some professional advice.

Good luck and best wishes!

Answer 4

You can make an offer contingent on selling your current home but without earnest money it probably won't be accepted.
Sell your current house then when it is about to close start looking, meanwhile save more money for a deposit if you do find a home to buy. Sometimes it takes a long time to sell a home and you get less than you hoped so don't spend the money until you see it.

Answer 5

Not sure what they call it where you are, but you might try for a "bridge" loan that will allow you to handle payments on both houses until you can sell your current one. Best bet, though, is to start selling your current residence and wait untiyou are under contract before signing on for the new place; arrange for closings so that you can go from the one you are selling to the one you are buying, transferring the money as you go.

Answer 6

most moves are in 'chains' which ensure you can use the equity.

I'd be careful about buying without sellings at the same time. debt interest can make you bankrupt.