Buying a New Home When You Have a Home to Sell
Buying a new home or selling your existing home can be full of unknowns and stress, but it doesn’t have to be. Before you even decide to put your house on the market educate yourself on your finances and options. Unless you can carry two mortgages at once; it will take some time and planning upfront to save you from stress, time and questions later. By putting together, a plan and educating yourself on your options you’ll be able to move forward with confidence and focus on the joys of moving and not the stressors.
Which came first? – The buying of a new home or the selling of an existing? There is no right answer. There is only the plan that best suits your family’s needs and financial capabilities. In an ideal world, you would sell your home today and move into your new home the next. The following steps can help you set your family up for success:
Pick an Agent – Months before you even decide to sell your home, meet with one to three agents to discuss the price of comparable homes and determine what the current market value of your home is. This will give your agent an idea of what your estimate of proceeds are, thus giving you a realistic estimate of how much profit you will receive from the sale of your home.
Know your financing options – Next meet with a local mortgage lender or broker to discuss your budget and what kind of down payment you’ll need. Will you be able to carry two mortgages if your house does not sell right away?
Go through a loan preapproval process
Do you have enough of a down payment
Will the lender allow you to make the purchase before selling your current home?
Shop around mortgage rates
Planning – What type of state is the housing market currently in? Is it a competitive market, is the market slow, is it a buyers’ market or a sellers’ market?
Do you need the sales proceeds from your current home to close on the new home?
Will you need temporary housing between the sale of your existing home and the possession of your new home?
When it comes to strategizing your transition, there are four core options:
Carrying two mortgages for a designated time
Negotiating an offer on the new home with a subject to sale of your current home
Bridging the move-in gap by living in temporary housing
Closing on both your existing home and new home on the same day.
Carrying Both Mortgages – If you don’t have the ability to carry two mortgages, there is the option of a bridge loan. If you do not sell your home before moving into a new home you can use the funds from the bridge loan as a down payment. A bridge loan is a temporary loan that rolls the mortgages of two houses together worth an average of 80% of the combined value. This short-term loan ‘bridges’ the gap between the mortgage and sales price of your new home. Although an option if you have low debt-to-income ratio, a bridge loan will have a relatively high interest rate and will need to be backed by collateral. You will have to be approved by your lender.
Negotiating an offer on the new home with a subject to sale of your current home – This is an option if you are purchasing your new home before selling your existing. You can negotiate the sale of your current home into the contract of your new home as a tactic to ensure you will have the funds to close on your new home. Meaning, you will not close on your new home, until your current home is sold. This maybe a viable safety net, but the seller will be taking all the risk. A seller may not agree to this arrangement. If the seller does agree to this contingency, keep in mind, offers can still be made on the new home. If a more desirable offer is made on the new home, you will be asked to fulfill the contract within an agreed upon timeframe. If you cannot perform financially, the contract will become void and sold to the other party.
Bridging the move-in gap by living in temporary housing – The option will least amount of risk and the least stressful! This option is due to your current home already being sold before you purchase/close on a new home. The stress of needing to sell your home is over and you know the amount of funds you will net. From there you can place most of your items in storage while you reside in a short-term rental agreement. Although it may seem inconvenient at first to move into temporary living. It is more inconvenient to worry about finances and the need to sell your home.
Closing on both your existing home and new home on the same day – Is ideal, but also very difficult to do. Keep in mind all the stars must align for you, the buyers of your existing home and sellers of your new home. Somebody is taking a risk and that person is usually the seller of your new home.
No matter what route you take, the first step in your journey should be to educate yourself on what options makes sense for you. You won’t be able to eliminate ALL the stressors of selling your home while purchasing your new home, but you don’t have to worry about how you’re going to make that happen. Don’t be afraid to meet with people and ask questions. The more you understand the process the more negotiating power you have!