Mortgage & Wealth Strategies

Unlocking Your Path to a New Home: How to Buy When You Already Own

January 21, 2025 | Posted by: Matt Broom-Hall

For many homeowners, the thought of purchasing a new home while still owning an existing property can be daunting. Questions about down payments, mortgages, and managing two properties often create confusion. But with the right strategies and knowledge, navigating this process can be simpler than it seems. Here are some key options for Canadians looking to buy a new home while still holding an existing property.

Down Payment Verification and Financing Conditions

To secure financing for your new home, the down payment must be verified before you can remove the condition of financing on the new purchase. The down payment can come from various sources:

• Savings: If you have sufficient savings and qualify to carry both mortgages, you won’t need to secure a sale of your current home to provide a down payment.
• Equity from Your Existing Home: You can use the equity in your current property as the down payment, but this requires a firm sale (the buyer must have removed their condition of financing) on your existing home.
• Home Equity Line of Credit (HELOC): If you have a HELOC on your current home, you can use it as a down payment. If you qualify to hold both mortgages, a firm sale of your existing home won’t be necessary. However, if you only qualify for the new mortgage, a firm sale on the current home will be required.

Tip: Always ensure you have a clear understanding of your lender's requirements for down payment verification to avoid any last-minute surprises.

Qualifying to Hold Two Mortgages

If you plan to buy a new home before selling your current one, you may need to qualify to carry two mortgages. This will depend on your income, debt-to-income ratio, and the stress test, among other factors.

• Income Requirements: You must have sufficient income to support both mortgage payments. Lenders will evaluate your income, debt, and credit history.
• Stress Test Qualification: Lenders in Canada require borrowers to pass a stress test, which means qualifying at a rate higher than the actual rate. This ensures you can handle potential interest rate increases in the future.
• Considerations for Dual Mortgages: Holding two mortgages can increase financial strain, so ensure you’re prepared to meet both obligations until your existing property sells.

Renting Out Your Existing Home

If you’re considering keeping your current home as an investment property and renting it out, lenders typically allow a 50% offset of the rental income. This means only half of the rental income can be used to offset the costs of carrying both properties.

• 50% Income Offset: With this approach, you’ll need to qualify for the new mortgage and cover 50% of the Principal, Interest, Taxes, and Heating (PITH) costs for your existing home.
• Rental Property Management: Owning a rental property can be rewarding, but also requires ongoing management. Ensure you’re prepared for the responsibilities of being a landlord.

Note: Keep in mind that not all lenders accept 50% offset for rental income, so it’s essential to consult with your mortgage professional to confirm.

Bridge Financing

A common concern for homeowners is whether they need to close on their current property and move out before taking possession of the new home. Fortunately, bridge financing provides a solution for this scenario.

• How Bridge Financing Works: Bridge financing is a short-term loan that allows you to take possession of your new home before your existing home closes. This means you don’t have to worry about moving out of your current home before moving into your new one.
• Flexibility and Convenience: Bridge financing provides peace of mind by covering the gap, allowing you to move into your new property seamlessly.

Tip: Bridge financing is an excellent option if the down payment for the new property is coming from the sale of your existing home but the timelines don’t align perfectly.

Reverse Mortgage for Older Homeowners (Ages 55+)

If you’re 55 or older, a reverse mortgage can be a powerful tool for purchasing a new home, especially if you prefer to avoid monthly mortgage payments.

• How It Works: After selling your existing home, you can use a reverse mortgage to cover the remaining balance on your new home purchase. With a reverse mortgage, you won’t need to make monthly payments, as the loan is repaid when you sell the home, move out, or pass away.
• Advantages: A reverse mortgage allows you to purchase a new home, free up cash flow, and avoid the obligation of regular mortgage payments, making it ideal for retirees or those with a fixed income.

This approach offers a unique solution, letting you own a new home with minimal financial strain during retirement.

How to Get Started

1. Calculate Your Financials: Start by evaluating your current financial situation, including your existing mortgage balance and what you can comfortably afford for your next home. To make this easier, complete a pre-qualification using my app. This quick and thorough assessment provides an estimated maximum purchase price tailored to your circumstances—without affecting your credit score. Download the app here to get started!

2. Connect With Me: If you’re happy with the pre-qualification amount, let’s take the next step together! I can assist you with an underwritten pre-approval to determine your most accurate maximum purchase price. We’ll review your specific circumstances, explore all available options, and create a strategy tailored to your goals. Book a call with me here to get started!

3. Prepare for Flexibility: Each option has its unique considerations, so make sure you’re prepared for the nuances involved in transitioning from one property to another.

Moving from one home to another can be daunting, but with the right approach, it can also be incredibly rewarding. By understanding the available options—whether it’s using savings, leveraging a HELOC, taking advantage of bridge financing, or even considering a reverse mortgage—you can make informed decisions that align with your financial goals and lifestyle needs.

Ready to make your next move? Let’s explore the path that’s right for you.

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