Doing well in the housing market can be all about timing. Ideally, you want to have a buyer for your existing home, purchase the new place, and move smoothly from the old abode to your new dream home.
Of course, it doesn't always work out that way. You could end up purchasing your new home several months ahead of the date you sell your current residence.
Mortgage brokers and financial advisers recommend you explore your financing options before you even look at buying a new home, so you know whether you could cope with financing two properties, even for a short time.
"It's a case of educating yourself before you jump into the open market... before you go out and find that dream home," says Jeff Mayer of the Mayer Group, part of the brokerage firm Mortgage Intelligence. "In a situation where, if you do find a home -- what are you going to do if you haven't sold your old home?"
One option, if your finances can stand it, is to carry two mortgages.
"Take a look at your finances: Can you afford this? What kind of net worth do you have? What kind of income do you have coming in? How stable is your job?" says Carol Bezaire, vice-president, tax and estate planning, at Mackenzie Financial.
Look at your debt flows. You don't want to have more than 40 per cent of your income in a month going out to pay for your home. Work the numbers and make sure you're going to have enough money for groceries and for emergencies.
If you do not have a firm offer on your existing home, or a definite date for the sale to go through, advisers say lenders will likely be extremely wary of giving you a mortgage on both properties.
"First of all, I would look at their finances," says Jennifer Young, mortgage broker with Invis. "If they had equity in the home that they were trying to sell and they were OK financially to cover payments on both homes, then I would say, sure, go ahead and buy that home and keep your other home for sale and eventually it would sell."
If you have received a firm offer on your existing home and you are simply looking for a bridging loan to tide you over for a few months while you own two homes, Mayer says lenders will likely be much more sympathetic. However, he urges his clients to take a good look at the numbers before committing to owning two places even for a short time.
"Bridge financing is very costly if you go to the wrong institution," says Mayer. "Also, can you afford to hold two properties, and, if you can, is it worth it? If you're going to buy this property, and you got a good deal on it but you have to hold another property for X amount of time, is it worth it? What if the market changes? You might lose that other home; you might lose both."
So the advice is to get your head around the numbers before your heart goes for that dream home.
"Ideally, of course, you want to have your house sold prior to buying another one because it just makes more sense financially," says Young.
She recognizes buyers may be keen to secure a mortgage at today's low rates and go for that new home, but cautions they must consult with a mortgage adviser to make sure they really can afford to keep up payments on two properties.
"The worst outcome could be that they could lose their home because holding two residences overstretched them financially," she adds.
-- Postmedia News
