New Home Buying (to pay off current mortgage or not before buying)?

[DadOfStress]

I currently live in small home and can pay off mortgage now. We are expecting twins and need bigger, more expensive home. I have savings to pay both current mortgage off and pay a downpayment, but want to be able to borrow max amount from banks. Is it (1)better to pay off current mortgage, then apply or (2) apply for mortgage on larger home without retiring current debt? Thanks!!!!

[disneysteve]

You shouldn't buy the new home until you have sold your current home. There really isn't any point to paying off the current home just to turn around and sell it. I would hold onto the money.

As for the next home, I'm not sure what you mean by "want to be able to borrow max amount from banks" but I'd advise putting down at least 20% on a home costing no more than 3 times your annual income and taking a loan with a payment of no more than 28% of your monthly income.

[littleroc02us]

What do you mean by borrowing max from the banks?

[greenskeeper]

What do you mean by borrowing max from the banks?

I think he wants to get into his next house with as little a down payment as possible. To minimize his risk perhaps? As long as the monthly payment is affordable and he can swallow PMI then it should work for him.

[littleroc02us]

I think he wants to get into his next house with as little a down payment as possible. To minimize his risk perhaps? As long as the monthly payment is affordable and he can swallow PMI then it should work for him.

Waiting to hear from him, should be interesting.

[disneysteve]

I think he wants to get into his next house with as little a down payment as possible. To minimize his risk perhaps?

How does taking on the maximum amount of debt minimize risk? Sounds to me like it maximizes risk.

[MonkeyMama]

Sell the first home before you buy another. Certainly don't pay it down and tie up all your liquidity in it.

[DadOfStress]

Sorry for taking so long to reply. Thanks to all who have replied. With the comment "borrowing the max from banks", I meant I want the most flexibility when we buy, so the more house or dollars we prequalify for, the better. I don't want to be "house rich, cash poor", but it's nice to have option of being able to use the banks if needed. If I pay off mortgage on current home, I was thinking that would increase the pre qualification amount I would be eligible for, but not sure after reading posts if it would help my ability to qualify for larger amount or not.

[cschin4]

Why do you need a bigger more expensive home? You shouldn't do ANYTHING until after the twins are born and at least wait a year to see how your life is going to change. THEN and ONLY THEN, consider a bigger home. If you buy now, you will be making the biggest mistake you can possibly make.

[littleroc02us]

How does taking on the maximum amount of debt minimize risk? Sounds to me like it maximizes risk.

Bingo!

[disneysteve]

the more house or dollars we prequalify for, the better.

Why? What difference does it make how much you prequalify for as long as it is enough to buy an affordable home? The banks always qualify you for way more than you can actually afford anyway.

[cschin4]

The biggest mistake that new parents make is deciding the "NEED' a new home, a bigger car or minivan and on and on. They rush out, saddle themselves with huge debt, then bemoan the fact that they are now stuck and have no opportunity to allow one parent to cut back or to stay home, even part time. I would highly advise you to stay put! Wait this out. Take a year to adjust. I don't know your situation financially or if your spouse also works, but take heed and realize that not putting yourselves into a bad financial position will allow you to make better choices for you and your children.