When moving up to a larger home, you’ll probably have to put the cart before the horse, which means getting qualified for that new home purchase first. And getting qualified means that there are number of things that need to be examined, primarily, equity, credit, income, and VA loan limits. Here’s a quick overview:
Equity is the amount that you’ll put down, if any, on the new home. Typical move-up buyers sell their current home, and then they receive the net cash proceeds as funds available for a down payment on the next home. In this circumstance, the buyer has a choice to make. If 100% financing is available (to the loan amount desired), should they use these funds for their home purchase? At the time of this writing, rates are extraordinarily inexpensive. There are VA jumbo rates (amounts greater than $417,000) lower than 4.00%! I advocate borrowing more at cheap rates, not less, but I also advocate realistic budgeting, living within your means, and optimizing the opportunity costs of your cash. For example, if you can get $100,000 in net proceeds from your sale, and you don’t need all that for your down payment, and you’re wondering what to do with it, you might want to consider investing $75,000 from the sale and using $25,000 for the down payment. You don’t have to take all the net proceeds from the sale of your home and commit it to the new purchase. And I encourage you to seriously consider whether you should or should not be doing that. Therefore, as it relates to qualifying for the new home, you’ll want to examine the equity component. Is making a down payment necessary or unnecessary to accomplish your goals?