If you're already a homeowner, the idea of purchasing another house may be overwhelming. Do you sell your home first and live somewhere temporarily as you search for a new one? Or buy a new one first and pay for two mortgages simultaneously until you can sell your current home? Can you manage to do both of these things at once?
Luckily, when it comes to selling and buying a house at the same time, you have several options to choose from, and the best one for you depends on your budget, your property, your personal situation and the local market where your house is located. In this guide, you'll learn what you need to know when selling and buying a house simultaneously.
When it comes to the process of selling and buying a house, one of the most important things to get right is the timing — and the timing depends largely on the housing market in your area. Here are some of the strategies you should take in both a buyer's and seller's market.
If you're in a buyer's market, selling your house may take longer, so it may be best to wait to make an offer on a new home until you have a contract with a buyer. One benefit of being in a buyer's market is that you will often have more negotiating power to include a contingency that you will only buy the new house if your current home sells. This provides many buyers with more peace of mind.
In a seller's market, you should ensure your house is ready for the market and staged to sell. You may want to get your finances in order, which will allow you to make an offer quickly if you find a house you want to purchase. When the market favors sellers, it's less likely you'll be able to move the closing date or include contingencies in your offer, especially if the seller has to move soon. However, if the house you're selling is correctly priced and well-staged, it is likely to sell more quickly. A seller's market also allows you to be more choosy about the offers you want to consider and lets you pick ones with fewer contingencies.
As we mentioned earlier, there are three basic courses of action when it comes to buying and selling a home around the same time — buying first, selling first and doing both simultaneously. Here are our top tips for each option:
Let's say you found the home of your dreams. It has everything you've ever wanted and fits your budget — but your current home still hasn't sold. You may decide you can't pass up the opportunity to buy this special property.
Traditionally, most people would sell their homes before buying a new one, but there has been a shift since COVID-19. This could be due to several factors, including the increased demand for space. It could also be that, since homeowners have been spending more time in or near their home, they realize they're not too fond of their surroundings and neighborhood and want to make a change quickly without having to wait for a sale.
Here are some tips on how to go about buying first while keeping your risk and stress at manageable levels.
You can sell your house if you have a mortgage, but you'll want to examine your monthly disposable income and cash reserves before buying a new home. Decide if buying first is a viable option for you by asking yourself these important questions:
If you live paycheck to paycheck, this isn't an option you should consider. However, if your income is strong and your monthly debts are low, you may be able to use this option.
We also recommend speaking with a trustworthy real estate agent and lender. Once they are aware of your situation, they can determine what your current home will likely sell for and how much you can spend on your new house. They will also examine your debt-to-income ratio and calculate whether you can be preapproved for your loan before you sell your current house.
If your available assets are insufficient for a downpayment, consider getting a bridge loan. This short-term loan taps into your current home's equity to obtain the needed downpayment to complete your purchase. This option is only viable if you feel comfortable paying two mortgage payments for as long as six months or a year, which is the regular bridge loan term.
If you feel it's too much to carry multiple mortgage payments, consider making a contingent offer, which has a condition that you'll buy only if your current house sells. If not, the contract says you won't lose your earnest money.
This option is appealing because it eliminates your financial risk, but the downside is that it weakens your offer. If you're in a seller's market, making a contingent offer will not put you in a powerful position. You're more likely to succeed with this type of offer if it's a buyer's market or the home you want to buy is less in demand.
Another available option is solidifying your offer with a significant amount of non-refundable earnest money, which the seller will hopefully consider a sufficiently good incentive to hold out a bit longer until your home sells.
If you choose to purchase a new home first and sell your current home later, you will want to sell it as soon as you can to keep from paying two mortgages for extended periods. We recommend working with a real estate investment company or instant homebuyer to do a cash sale, which usually is much faster than the regular listing process. However, it's important to know that doing this means the offers you get may be considerably less than what you'd get on the open market.
You don't need to sell your house before buying another, but it might be the best option if you're not comfortable being responsible for two mortgages at once. This route is safer financially, as it will free your equity up to use for your downpayment. It will also lower your ratio of debt to income and increase your chances of being preapproved for a loan.
Before your put your home on the market, make sure to do the following:
Selling a home can be one of the most stressful experiences in modern life, and trying to purchase a new home at the same time compounds this stress. To help you manage your stress in this situation, try these tips:
Listing your house with an experienced real estate agent will greatly reduce your stress during this process. A real estate agent will always be there to answer any questions you might have to help you solve your problem. Here are some other ways that a real estate agent will help you:
When searching for a good real estate agent, consider these tips:
Most people cannot afford to purchase a new home without first selling their old one or doing it simultaneously. If you buy a new home before selling your current one, you may have trouble coming up with your downpayment. Before beginning the financing process, make sure you know what financial choices you have. Here are two common options:
If you feel ready to take the next big step forward in finding your dream home, let us at SK BUilders know what you're looking for, and we'll be in touch with you shortly.