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A home equity line of credit represents the potential equity that can be borrowed from a bank/lender. It is the difference between the mortgage balance and 70%-75% of the home’s present value and can be used for the express purpose of proving the much needed deposit monies. This line of credit does not cost you anything to secure and it may be needed in order to get an offer accepted, unless you have other monies to use as deposit. This substantial deposit/sum is the money you place into an escrow account awaiting settlement. Typically part is delivered upon acceptance of the offer; the balance paid after inspections are resolved.
A bank/lender will be reluctant to provide a bridge loan before stage 3) or 4) - see below. This temporary loan is given by a confident bank or lender who fronts your remaining equity (sale price less closing costs) between the time of settling on your new home and the settlement of your primary residence/Home #1.
It is less problematic making a housing transition if you have great re$ource$. If your income allows a lender to approve you to purchase without selling, you can be a very competitive Buyer. Problem solved.
If you must gather as much of the equity out of Home #1 as possible, the simplest way is to sell and negotiate a protracted occupancy - like a 60-day settlement with an optional 30 day rent-back. This is an unsettling option because it is possible that you may need to find temporary housing if the timing of the settlements do not line up.
Today's well-maintained/improved properties in desirable neighborhoods attract multiple offers. As such, you will be competing with Buyers who do not have home sale contingencies. Place yourself in the Seller’s shoes. If you were selling your home and were entertaining 2-3 very qualified, nearly identical offers, except that one offer has a contingency stating that the Buyer's primary residence must sell (& settle?!) before they can make settlement on your home, which would you choose? How much of a price difference would there have to be in order to sway a Seller to accept an offer dependent upon another property's sale? If you want/need to secure another property before selling your primary residence, please recognize that the strength of your offer is dependent upon the status of your home, listed below in weakest to strongest position. Remember that the Seller has straightforward/typical paperwork from the competing offers.
1) Your home is ready to go on the market once you've secured a property to buy, along with your purchase offer package, you supply the Seller with photos & data - hoping to demonstrate that your home will go under contract in a very short/week's time.
2) Your home is "under contract" with a pre-qualified Buyer. You provide the Seller with the MLS listing of Home #1, your Buyers' BFI (Buyer Financial Information sheet), their lender's pre-approval and a copy of their purchase offer.
3) Your home is "under contract" and all inspection contingencies have been satisfied. You provide the Seller with the MLS listing of Home #1, your Buyers' BFI (Buyer Financial Information sheet), their lender's pre-approval and a copy of their purchase offer.
4) Your Buyer's loan has been approved & awaits settlement. You provide the Seller with Home #1's purchase offer & loan approval.
Whether or not you may be selling before buying, I want you to feel confident going into this process. You will get MLS updates on the properties coming to market that fit your desired parameters. You should get pre-approved for your mortgage (no cost to you) and we should visit properties in your price range, knowing that nothing is happening until all our ducks are lined up. The more informed you are, the more prepared you will have been and the more confident you will feel going into this. It's easy buying your first home. After this you will not want to transition residences many more times. It is stressful for people who already have the extra money and income. I will do everything I can to make this as stress-free a process as possible. Please keep me informed of your progress as you attack the slated pre-sale home improvement projects we’ve discussed!