Thinking about buying a new home? What are the best options for selling one home while buying the next one?
Here, we present several methods and strategic tips. One of these strategies, or a blend of them, could be the perfect plan for you.
Strategy #1. Stay in your current home while buying the next.
You might decide to live right where you are while home shopping. The benefit of keeping your current house is the avoidance of temporary housing, so you won’t need to move twice.
If you live in the home while showing it, the use of virtual tours can keep distractions on both seller and buyer sides to a minimum. As your real estate agent will tell you, now is the time to declutter! Take non-essentials out of the house and store them.
The tricky part is the risk of possibly having to juggle a new mortgage along with your current loan until the right buyer comes along and buys your current home. Not everyone is in the position to do it. If you’re unsure, meet with your accountant or, even better, the mortgage specialist who’ll guide you through this. Check your income and debts and to determine if you can handle overlapping mortgages for several weeks or months.
Holding two mortgage loans is not for the faint of heart, but if you have ample funds and selling your current home in a seller’s market, it could work. That said, holding two mortgages is a serious risk if your current home doesn’t sell as quickly as you hope it will.
☛ Planning to buy before you sell? Know how to identify and leverage a seller’s market.
If a large number of buyers are active in a given market relative to the supply of available homes, it’s a seller’s market.
To get technical about it, consider the city’s absorption rate. This figure is used by real estate professionals, including lenders and appraisers, to determine the speed at which homes sell in the area during a span, for example, of one month. Divide the number of home sales in the month by the total homes on the market at the month’s end. According to Bankrate, an absorption rate of at least 20% indicates a seller’s market (that’s 10+ home sales in a month in a given city for every 50 on the market at the month’s end). That’s the best time to sell a home.
Strategy #2. Move Into a Temporary Residence.
Some sellers deliberately sell first and buy later. This makes for an awkward time in which the homeowner will have to live in temporary housing and move twice. For many people, the inconvenience is worth it once their homebuying goal is achieved. This way they have held only one title at a time and avoided the need to have overlapping mortgages.
If you chose this route, the map is straightforward. Empty your current home, paint the interior in neutral shades, take care of cracked tiles, replace worn trim, and tidy up the exterior. You can even have professionals handle all of this. Today, real estate agencies with concierge services will counsel you on the most cost-effective, price-lifting renovations for your market, which tend to include things like:
- Cleaning and painting.
- HVAC or roof replacements.
- Plumbing or rewiring.
- Upgrades such as new closets, flooring, a washer and dryer set, kitchen appliances, countertops or bathroom renovations.
The concierge service will then handle the upgrades, and stage your home. The service will help you with moving and storage, too.
With some thoughtful attention to interior design and curb appeal, you may be able to sell your house first while you’re in your short-term residence, and be in the perfect position to buy your next home.
Strategy #3. Make a contingent offer, and sell your current home before committing to a new loan.
If you go this route, prepare to list quickly with the Multiple Listing Service (MLS), so your home gets high online visibility. Then, find your new house. Once you have a buyer for your current home, make your offer on the house you hope to purchase. And be fully ready to buy your future home with the stipulation that your current home is sold first. With a contingent offer, you may need to persuade the owners of your next home to wait for you to carry out your own sale. What’s in it for them? Options that could make your contingent offer more attractive could include:
- Making a high offer.
- Covering the seller’s closing costs.
- Strictly limiting the number of days the seller must wait for you to sell your current home.
Granted, you’re unlikely to know for sure how long it will take for your current home to sell. And if you’re buying in a seller’s market, a contingent offer might not be viable.
Your real estate agent can help, by showing the owner of your potential new home that your current home is in a hot area, in turnkey condition, and priced to sell. Be sure to put together a strong package of recent sale prices for comparable homes. Provide the sellers proof from your mortgage specialist that you are financially ready at a moment’s notice to buy the new home.
Strategy #3 carries plenty of risk and potential frustrations. Because you’re forced to move quickly to obtain the new home, you’re giving up some bargaining power when selling your current home. No doubt, though, you’re in the strongest position here if you’ve accepted an offer on your first house before bidding on the next.
4. Strategy #4. Tap into your current home equity to finesse the exchange.
You might be eligible to borrow several months’ worth of loan payments by tapping into your current home equity. A bridge loan is an example of this strategy. This is a loan specially designed to facilitate buying a new home while marketing a current one. Once the first home is sold, the loan can be repaid from the sale proceeds.
Not only does this financial bridge put some cash where you might need it; it can also raise your confidence level, making you a stronger seller, better able to negotiate for your asking price.
Bridge loans are so desirable to home shoppers that in this highly service-oriented era, real estate agencies themselves are offering them. Compass.com shows an example of this trend.
Pro tip: If you are using the same agent to sell and to buy, you might ask for a credit — some may give a half a percent or even one percent — to reduce the weight of heavy transaction costs of two back-to-back settlements.
No Matter Which Pathway You Choose…
It’s always good to have the helpful guidance of local real estate agent with fiduciary duties to you, and a mortgage specialist determined to ensure you come out in the best possible financial position after your transactions are done.
In a perfect world, every homeowner would be able to move right from a current home to the next one, but the stars do not always align. Wondering about the best path ahead in your circumstances? Sit down with a local mortgage pro and get some sage advice. Best wishes at every stage of your journey!
Photo credit: Tumisu, via Pixabay.