As a homeowner, if you’re moving, you might be trying to sell your current home and buy a new one at the same time. Balancing these two tasks can seem difficult, especially to someone who hasn’t done it before. The good news is that these simultaneous transactions happen all the time, and there are ways to smoothly navigate this process.
Many borrowers can’t easily afford two mortgages at the same time, so they’re stuck waiting to buy a new home while trying to sell the one they want to move out from. While temporarily handling two payments would be the most convenient option, for most people, it’s off the table. Even those who can afford two mortgages might find it difficult to qualify for a new mortgage while still owning their current home. The key to successfully minimizing risk and expenses as much as possible is through careful planning.
The Pros And Cons Of Buying Vs. Selling First
To decide whether to buy or sell a house first, it’s important to consider the pros and cons of each option, as well as your personal finances. As always, you must keep your budget, schedule and personal financial goals in mind when determining your next move.
Selling Before Buying
Deciding to list your home before purchasing a new one is probably the least stressful option. This is because you’ll increase your chances of selling your home before finding a new one, therefore eliminating the risk of taking on two mortgages at a time. However, there are a few risks that come with this scenario as well.
Some Pros of selling before buying:
- Having A More Comprehensive Down Payment/Budget
- Easier Financing
- Less Pressure
Some Cons of selling before buying:
- Temporary Housing
- Moving Twice
- Missed Opportunities of Potential Homes
If you choose to sell your home before buying a new home, here are some ways to make it happen:
Make an offer with a settlement contingency: In this scenario, you will list your house first, then begin your new home search once you have an offer in hand. When you find a home you like, you will submit an offer with a settlement contingency, meaning you will buy the house contingent on the sale of your existing home. This works best in a sellers market where there will likely be multiple offers on your home fairly quickly.
Find a temporary rental to live in: This requires moving twice which is not ideal, but it also offers extra time to find the right home, and takes the pressure off of your wallet if finances are a point of concern.
Sign a rent-back: A rent-back provision is when you go through the sale of the home with an agreement that you can rent the home back from the new owners and keep living in your home for a certain period of time. This option allows you more time to shop for a new home without moving twice, while still offering access to the money from your sale. This also works best in a sellers market, where buyers are usually more flexible with terms in order to get the house they want.
Buying Before Selling
If you’re financially capable enough to buy your new home while still in your original home, then you might find that this is the best option for you. To buy a home while still owning a home, you’ll need to prove that you can afford both mortgage payments. Depending on the lender and loan type, this might mean showing that you have a certain number of months’ worth of payments in the bank, a substantial down payment, or other documentation.
Some Pros of buying before selling:
- Finding Your Dream Home
- Only Moving Once
- Benefit From The Market Shift
Some Cons of buying before selling:
- Risk And Financial Pressure of Owning Two Homes Simultaneously
- Balancing Two Mortgages
- Possibility of High-Interest Loans if pursuing a Temporary Bridge Loan
If you choose to buy a second home before selling your current home, here are some ways to make it happen:
Make an offer with a sale contingency: Once you find a house you love, you will submit your offer with a sale and settlement contingency. This means you will buy the home only if you can successfully sell your existing home. However, contingencies typically work best in buyers markets, when the seller is less likely to get another offer.
Request an extended closing: If you’re confident that your current home will sell in a short period of time, you can request to extend the closing date of your new home (past the standard 30-45 days). This is a great option if you are using your home equity to buy another house, but also works best in buyers markets.
Purchase with savings: This is a great option if you are in the financial position to do so. However, keep in mind that you’ll also need money to cover closing costs, inspections, moving expenses, etc.
Purchase with a bridge loan: A bridge loan is a short-term loan offered by some lenders to cover the cost of the down payment, just until your sales close.
Rent out your first home: If you are not using the equity from your first home to purchase any part of your new home, finding renters to cover the mortgage costs is a savvy way to delay the need to sell at the same time as buying.
Whether you choose to list your home first or buy your new home first, the experience can be a bit tricky to navigate. One helpful option may be to consult a trusted lender to discuss your honest financial options and steer you in the right direction.
Another professional to reach out to is a local, trusted real estate agent. Working with a local real estate agent can be a game changer when trying to buy and sell a home around the same time. It’s important to work with real estate professionals who have strong knowledge of the local market to ensure that your home is sold as quickly as possible, while also showing you new homes in your desired location.
If you are currently looking to sell your home and have some apprehension with buying in this competitive market space, give us a call at (760) 930-0569 and one of our loan consultants will be happy to discuss all of your options with you.