You are not required to sell your current home to buy a new home but keeping your home can make it more challenging to qualify for a new mortgage. If you do not sell your home -- or make that a condition to closing -- before you buy a new home, the monthly housing expense for the home you currently live in is included as debt in your debt-to-income ratio, which makes it harder to qualify for a new mortgage. Lenders use your debt-to-income ratio to determine what size mortgage you can afford with the higher your monthly debt expense, the lower the loan amount you qualify for.
If you make enough money to afford the total monthly housing expense (mortgage payment plus property tax and homeowners insurance) on the home you currently live in plus the housing expense on the home you want to buy, then you do not need to sell your current home to get approved for a mortgage to buy a new home.
For example, if the monthly housing expense for your current home is $2,500 and the housing expense for the home you want to buy is $3,000, then you need to earn enough monthly gross income to afford $5,500 in combined housing costs, in addition to your other monthly debt expenses including payments for credit cards and car, personal and student loans.
If you plan to sell your current home before you buy a new home you only need to make enough monthly income to afford $3,000 in housing expense for the new home plus your other personal debt expenses. The lower your total debt expenses, the easier it is for you to qualify for the loan and the higher the mortgage amount you can afford.
If you want to buy a new home but cannot afford the payments on two homes then the lender typically requires you to sell your current home and payoff that mortgage as a condition to approving you for a new loan to buy the new home.
Use ourHow Much Home Can I Afford Calculatorto determine what price home you can afford based on your income and debt expense
Please keep in mind that in addition to qualifying for a mortgage, you also need to come up with the down payment to buy the new home and have enough funds remaining in savings to pay for closing costs as well as reserves you may be required to hold at closing. In many cases home buyers use the proceeds from selling their current home to pay for all or part of the down payment on their new home, so keeping your current property removes a potential source of funds for your down payment and closing costs, which can run thousands of dollars.
If you decide to sell your current home and it is under contract, then lenders use the sales price minus closing costs and any existing mortgages or loans on the property to determine the proceeds you receive. If your home is listed for sale but you do not have a buyer yet, lenders use 90% of the asking price less any mortgages on the property to determine your proceeds.
If you are relying on the sale of your current home to pay for your all or part of your down payment or closing costs, you are required to provide the lender the closing statement for that transaction before or concurrent to the closing of your new mortgage to demonstrate that you have enough funds to complete the purchase of your new property.
If you decide to keep your home, you may be able to rent out the property to offset your monthly housing costs but lenders usually require a one-to-two year track record of rental income, as evidenced by your tax returns, to count that income fully. Before you apply for the mortgage, we advise you to check with lenders to understand how they treat rental income from a property you currently live in.
We recommend that you contact multiple lenders in the table below to confirm their qualification guidelines and to determine the mortgage you are eligible for if you keep or sell your current home. Shopping lenders is also the best way to save money on your loan.
"B3-4.3-10, Determining the Amount of Net Proceeds." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 23 2016. Web.
"B3-4.3-10, Sales Proceeds Needed for Down Payment and Closing Costs." Selling Guide: Fannie Mae Single Family. Fannie Mae, February 23 2016. Web.