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 before you buy a new home, the monthly housing expense for the home you currently live in is counted 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 on your current home is $2,500 and the housing expense on 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, 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 monthly housing expenses. The lower debt expense, excluding your current housing costs, makes it much easier for you to qualify for the new mortgage.
If you want to buy a new home but cannot afford the payments on two homes plus your other debt expenses then the lender typically requires you to sell your current home and payoff your current mortgage as a condition to approving you for a new mortgage to buy a new home.
Please keep in mind that you also need to come up with the money for the down payment to buy the new home and have enough funds in savings to pay for closing costs as well as reserves the lender may require you to hold at closing. In many cases home buyers sell their current home to pay for all or part of the down payment to buy a new home so keeping your current home removes a potential source of funds for your down payment and closing costs, which can run thousands of dollars.
You may be able to rent out your current home to offset your monthly housing costs but lenders usually require a 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.
You can also use our How Much Home Can I Afford Calculator to determine what price home you can afford based on your income and debt expense
If you want to understand what price home you can afford if you keep your current home then you include the monthly mortgage payment, property tax and insurance cost for that home in your debt expense along with your other debt payments. If you plan to sell your home before you buy the new home then only include the payments for credit cards, car, personal and students loans in your monthly debt expense figure.
We always recommend that you contact multiple lenders to understand how they would handle your unique situation. We advise you to contact at least five lenders listed on the table below as qualification guidelines vary. Plus, shopping lenders is the best way to save money on your mortgage.