You may be at a point in your life where you own a home, but something has come up such as a new job or an expanding family that is making you think of buying a new home. But wait, you have to sell this one first. You may think this is impossible; but you have the ability to both sell your current home and buy an new one. The following are some tips to do these without the headaches you’re worried about.
Know the market first
Before you start seriously searching for a new home—or put your current home on the market—make sure you have a solid understanding of the housing market in your area, and the area where you’re planning to buy. It is only at this time that you will be able to fully strategize. The best plan of action may differ depending on exactly who has the power.
That doesn’t mean to find one house you like and call it a day: Find multiple suitable options. That way, you’re less likely to find yourself in trouble if your purchase falls through—your newly sold home won’t leave you stranded.Similarly, make sure to hire an appraiser and price your old home fairly.
Plan ahead carefully
Should you buy first, then sell—or vice versa? Both have their risks and rewards. Selling first makes getting a mortgage easier, but it also means you’ll need to find a temporary place to live. Buying first means moving will be easier, but it also skews your debt-to-income ratio, making it harder to qualify for a new mortgage—not to mention the difficulty of juggling two monthly house payments.The answer is not clear, but you should choose whichever option is most feasible to you.
Whichever option you choose, make sure you’re prepared to accept the consequences: having to store your stuff and rent temporarily, or undergoing the financial burdens of dual mortgages.
Don’t Rely on Timing
When buying and selling a home simultaneously, there are many outside factors that you need to take into account.
Remember: You’re not the only party in this equation. For every seller there’s a buyer, for every buyer a seller. While things might appear to be working smoothly when viewing your master plan from above, that doesn’t take into account the variabilities of other people. Closings are rife with delays. Your buyers might have difficulty securing their mortgage; your home inspector may bring up issues that need to be fixed before you can move in.
So even if you’ve planned to sell your home first and are prepared to rent while buying, know that even the best-laid plans go awry—and you might end up juggling both mortgages. Preparing yourself for this possibility ahead of time will ensure a smooth transition.
Know your financial solutions
For those who choose to sell first, the process is relatively straightforward other than the additional cost of a rental between homes. However, there is the option of a rent-back agreement, where you negotiate with the lenders and buyers to be able to remain in the property for a maximum of 60 to 90 days—often in exchange for a lower selling price or rent paid to the buyers. This can relieve some of the pressure of finding a new home, giving you additional time to house hunt.
But if you’re buying first, talk to your Realtor about ways to decrease your financial burden and risk. Here are the two most popular options for buyers:
Contract contingency: Buyers can request that their new home purchase be dependent on the successful sale of their old home. If you’re looking in a competitive market, this may not be a good option; however, if the seller of your intended home has had difficulty attracting interest, this may be a good deal for all parties involved—assuming you can convince them that your home will sell quickly.
Bridge loans: Bridge financing allows you to own two homes simultaneously if you don’t have deep pockets for a second down payment. This option is especially attractive if you’d planned to sell your home first and use the proceeds to buy the second. It functions as a short-term loan, intended to be repaid upon the sale of your original house.
Don’t let fear rush you
If your home has sold but you haven’t found a new place to live, don’t let anxiety push you toward a bad decision.
Found the perfect home right on schedule? That’s great. But don’t feel like you have to compromise on things that are important to you just because you need to find a home. Conversely, don’t accept a bid that you feel is too low just because your finances are strained by two mortgages. If you have a temporary apartment set up, you’re less likely to compromise.
Certainly, selling and buying a house simultaneously will be stressful—but carefully considering and planning for the risks and hurdles can mitigate the stress.