Selling a Home
Buying and Selling
Buying and selling a home at the same time can be difficult in just about any market, but it can be rewarding when it means getting the property you want. It’s not just a matter of logistics and coordination, although that’s part of it. It’s also difficult because to close concurrently, somebody is taking a risk, and that person is often the seller of your new home.
There is no right or wrong method for how to buy and sell a house at the same time. Your options vary depending on what you can afford and how much risk you are willing to take on. It also depends on whether you are dealing with a buyer’s market, where supply exceeds demand, a seller’s market, where there is more demand for homes than there is supply, or both if you’re moving from one city to another.
Knowing What You Can Afford
It’s important to look at your cash reserves and your monthly disposable income. Ask yourself if you can afford paying both mortgages at the same time if need be. It is important to have a long financial runway before you’ll be unable to make both payments.
Knowing you have enough assets to use as a down payment is also important. You want to understand how much you have available for your down payment after accounting for paying both mortgages for the number of months in your worst-case scenario. If you’re living paycheck-to-paycheck, this option isn’t for you. If you earn a strong income and have low monthly debts, you can likely utilize this option.
It’s best to consult with your agent, who will likely talk to a lender about your situation. The lender will look at what your current house is likely to sell for, what your payment is, and what you want to spend on the next house. They’ll also look at your debt-to-income ratio to determine whether you can get preapproval for the loan before selling your current home.
Consider a Bridge Loan
If you don’t have enough assets for a down payment, you can talk to your lender about obtaining a bridge loan. This is a short-term loan that taps into the equity in your current home to get the necessary down payment to complete your purchase. This is only a viable option if you’re comfortable taking on two mortgage payments for up to six months or a year, which is the typical term for a bridge loan. Some buyers make their offers contingent on getting the bridge loan, rather than on the sale of their home.
Make a Good Offer
If carrying two mortgage payments is too much of a stretch, one option is to make a contingent offer, which includes a condition that you’ll only buy if your current home sells. If it doesn’t sell, the contract states that you won’t lose your earnest money. While this eliminates your financial risk, it also weakens your offer. There’s the possibility that your offer might get ousted in favor of a non-contingent offer.
If a seller has one offer that is cash with no contingencies, and another offer that is a little higher but has an inspection contingency, financing contingency, and a contingency on the sale of their current home, they will likely go with the cash offer. This is especially true in competitive markets where multiple offers are coming in. When inventory is low and demand is high, going in with a contingent offer is not a good position to be in. It’s more likely to work out if it’s a buyer’s market or if there is less demand for the home you want to buy.
Another option is to solidify your offer by offering significant non-refundable earnest money, in hopes that the seller will consider that to be a good enough incentive to wait until you have sold your house. If your dream home is at a popular price point for the area and there is competition for the house, the best strategy is to make the highest offer and come in with non-refundable earnest money to try and win the deal.
Consider Seeking a Cash Buyer
If you decide to buy first and sell later, you’ll want to sell as quickly as possible to avoid paying two mortgage payments for an extended period. You can work with our team to initiate a cash sale, which typically goes much quicker than the traditional listing process. However, you should be aware with this route that the offers you receive could be significantly less than what you’d fetch on the open market.
Deciding to Sell First
Sellers who aren’t comfortable being on the hook for two mortgages may opt to sell their current home before making an offer on another property. This is a safer financial route, as you’ll free up your equity to use for a down payment, will reduce your debt-to-income ratio and will be more likely to get pre-approved for your next loan. This route does normally take longer, and you may miss out on your dream home. Speak with your agent to decide if selling first is what works best for you as it is the safest route. In some scenarios, you may be able to get your cake and eat it too.
Price it Right
One of the few things you can control about the selling process is the price of your home. Pricing it too low could undervalue your home and leave you with less cash for your next down payment but pricing it too high could deter would-be buyers or run the risk of the appraisal coming in low and putting the deal in jeopardy. Pricing the home in line with or even slightly below market value to get multiple offers, then choosing the most dependable offer with the fewest contingencies. You’ll need to do some market research before you list your property but coming in at a competitive price may save you from headaches further along in the selling and buying process.
Plan for the Gap
While selling before searching removes the risk of overextending yourself financially, it also means you’ll likely need to secure temporary housing until you find your next home. One option is to enter a back rent —post-closing occupancy—agreement with the buyer of your current home. This happens often when homeowners need more time after closing to either move or find a new home. If the house was sold to an investor, the investor would typically offer a free rent back period. Another option would be to move into a rental property before deciding on your next move. This is a common strategy for people starting an out-of-state job who don’t have much time to buy a place first before moving to their new city.
Look at Home Trade-in Programs
Another option to consider is a program that allows you to trade in your house for a new one, similar to how you might trade in a car for the latest model. This could look like partnering with a construction company so you can swap your current properties for a brand-new house, without having to move twice or carry the burden of double mortgages. This convenience can come at a cost. Be careful though, homeowners who trade in their houses can end up with less than the selling price of comparable properties on the open market.
Tips for Keeping Calm
Being prepared is your best asset for a complicated transaction like this. There’s no escaping the fact that selling a house can be monumentally stressful. It is easy to be driven to tears during the process. After all, this often considered the most stressful event in modern life. And that stress can be even further magnified when trying to buy a new house at the same time. To help smooth over some of the inevitable bumps in the buying-while-selling road, work with a knowledgeable agent who has experience juggling both transactions.
You seller’s agent will help you with your specific action plan and proper expectations in place. They will help you clearly define your buying criteria. They will make sure they transactions go as smoothly as possible, by helping you set a reasonable selling price for your current home and help you complete your checklist to make sure your home is ready to show and sell.