Moving up, down, or sideways, selling your home to buy another home can be a little tricky. Nonetheless it is being done all the time. Today’s market is a good time to make the move. It is a balanced market neither favoring the seller nor the buyer.
Here are your possible scenarios:
- Buy your next home and then sell your existing one.
- Sell your current home and then buy your replacement property.
- Purchase your next home and rent out your current home. (this only works if you can qualify for two mortgages or you have all cash)
Below are the pros and cons of scenarios 1 & 2.
Buying a house before selling
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: In this scenario, you’ll focus on finding a new home before you list the old one. Once you find a house you love, you’ll submit your offer with a sale and settlement contingency, which means you’ll buy the home only if you can successfully sell your existing home. Typically, the sellers of the home you’re buying are still allowed to seek other offers. 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 existing 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 will give you enough time to sell your current home and use your home equity to buy another house. Just like with contingent offers, you’re more likely to have success with this strategy in a buyers market.
Purchase with savings: If you’re in the financial position to do so, the simplest route is to use your savings to pay your new down payment, then sell your old home after the dust settles. Keep in mind that you’ll also need money to cover closing costs, inspections, and moving expenses.
Purchase with a HELOC: A HELOC, or home equity line of credit, allows you to borrow against the equity in your current home. If you qualify, you could use a HELOC to access money for your down payment, then pay it off when your home sells.
Purchase with a bridge loan: A bridge loan is a short-term loan offered by a bank to cover your down payment, just until your sales close. Make sure to talk to your banker about this option early in the process, because not all banks offer this product and it can be hard to qualify.
Pros of buying before selling
- You have somewhere to move right away.
- You only have to move once, which allows you to save money on storage units or temporary housing costs.
- You’re less pressured to make quick buying decisions, as you can always stay in your current home a little longer if you don’t find a property you love.
Cons of buying before selling
- You may feel rushed to sell, which may lead you to take a lower offer than you would otherwise.
- Contingent offers are less competitive, especially in fast-paced markets.
- You may not have enough cash to make a competitive offer if your money is tied up in your current home.
Selling a house before buying
If you’ve decided to sell your current home first, here are some steps you can take to make the process a bit smoother.
Make an offer with a settlement contingency: In this case, you’ll list your house first, then once you have an offer in hand (but before closing), you start looking for your new digs. When you find a house you love, you’ll submit an offer with a settlement contingency, which means you’ll buy the home contingent on the sale of your existing home closing. This works best in a seller’s market, where you can expect to receive offers on your existing home fairly quickly.
Find a temporary rental to live in: Yes, you’ll have to move twice, but sometimes closing one sale before starting another one can be the least stressful option, as it takes the pressure off the timing and gives you the time to find a home you really love.
Sign a rent-back: A rent-back provision is when you go through with the sale of the home, with the agreement that you can rent the home back from the new owners (and keep living in your home) for one or more days. This option can give you more time to shop for your new home, while still giving you access to the money from your sale. Keep in mind that this option works best in a sellers market, where buyers have to be more flexible with contract terms in order to get the home they want.
Pros of selling before buying
- You know exactly how much equity you’ll have available to put toward your new home.
- You can easily roll your existing equity into the new purchase.
- It can be less stressful to close the book on one chapter before focusing on your next move.
Cons of selling before buying
- You’ll likely have to find a temporary living situation.
- Storage and double moving costs can add up.
The first step regardless of how you make the move is to get an estimated value of your existing home to determine how much equity you will have to apply to the purchase of your new home. You also may want to hold some equity back for remodeling costs of your next home.
There are some tactics I have learned to help navigate through this process. Please don’t hesitate to reach out to me.
John Ecklein, Realty ONE Group – 916-308-76642 – john.ecklein@gmail.com
There is no substitute for experience – 22 years of helping families find the right home.
