Our current primary residence has no mortgage on it. We would like to purchase another home which will become our primary residence. Then after we move in to the new home, sell the home that we are living in now. Will the mortgage company allow us to do this?
No Problem… just sell the house with I believe 2 years of moving out to get the tax benefit.
Owning your existing home outright while buying a new home should work out just fine.
But keep in mind that your new home’s mortgage interest rate and terms and conditions will depend on how strong a borrower you are. While going into debt is never a good idea if you can avoid it, the next best thing is to leverage your assets intelligently and to your financial advantage.
So I wouldn’t form any rock-solid positions on whether or not to encumber your old house in order to get the best and cheapest financing for the new one. Play it to your advantage because the new mortgage may be around for a long time.
I did just that 18 years ago. I owed about 100k on my house. Following Clark’s advice, I canned that mortgage and opened a home equity line of credit instead, using it as my mortgage while saving substantially in interest. This was during the home buying frenzy in CA back in 2004. I had horses and needed acreage with a home. Everything was being snapped up within days of listing with the prevalence of 0 down loans. I worked with a broker to find me a very creative loan where part of the loan was a HELOC. I think it was an 80-10-10 interest only loan. About 3-4 months after closing, I sold my primary residence myself, agents protected. I was a little uncomfortable paying both my mortgages for those months but was able to get the old one sold and use the proceeds to pay off the HELOC on the new home. I had a LIBOR loan on the new home, which I knew would vary wildly soon so I refinanced as soon as I could.