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How to Buy and Sell a House At the Same Time

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In many parts of the country, real estate markets are extremely competitive. To move quickly, you might plan to buy a new home and sell your old home at the same time. But how?

Buying a house before your current home has sold requires some strategic planning, as well as a strong stomach. There is a potential of carrying two mortgage debts at the same time. We’ll discuss some different ways you can ease the stress, and the types of mortgages that will help you to accomplish this.

Should you sell or buy a new house first?

Both options have some strong pros and cons.

Pros of buying a house before selling

If you secure your new place first, you won’t be stuck living out of a suitcase — or potentially living with your mother-in-law — while you search for a new home. With this option, you won’t worry about where you and your family and your pets will live after you sell your old house. Two other benefits:

  • You can have time to empty and clean your old place, making it more presentable to potential buyers.
  • You can alleviate some daily stress because you won’t have to always keep your residence tidy and ready to be toured by a gaggle of strangers.

Cons of buying a house before selling

The trade-off is pretty big, however: You’ll have two mortgages, at least for a short while, until you sell your current home.

Pros of selling before buying

Selling your house first eliminates the worry about making two mortgage payments simultaneously. You could also gain some cash money from the sale to use as the down payment on a new home.

Cons of selling before buying

The downside is that you are taking a risk on being in housing limbo. If you haven’t yet signed on a new home, a suitable place may not pop up, offers you make may be rejected and, even if your offer on the perfect home is accepted, it may be a while before you can close on it and move in. During this time, you and, potentially, your entire family, may have to live with relatives or pay for a hotel or an Airbnb, as well as rent a storage unit for most of your belongings. All of these inconveniences can add up.

If you’re on the fence about moving, ask yourself if you need to move to a completely new location or if remodeling something in your current home could solve any problems that may be driving you away.

How to buy a new house while selling your current home

  1. Assess the market

    See if you like any of the homes on the market. As you look around, take a peek at the amount of time houses are staying on the market. This will help you to know how fast your house could sell and how fast you may have to move to snatch a new place. And, of course, look at the prices.

  2. Do some math and investigate financing options

    Put some prices into a home loan calculator and take a closer look at your current finances. Here are two questions to ask yourself: Do you have enough income to cover two mortgages for a while? Do you have enough savings to make a 20% down payment? The answers can help you figure out your best financial move.

  3. Apply for Financing

    Start the process! We always recommend that you have a mortgage preapproval and shop around for the best interest rate. You can apply to multiple lenders and it won’t hurt your credit any more than applying to one, as long as you do all applications within 14 days. The three major U.S. credit bureaus allow a two-week window for consumers to rate shop.

  4. Meet with a real estate agent

    Get some professional advice and talk with a real estate agent. Make sure you feel comfortable with your agent. The same person may be able to help you both sell your old house and purchase a new one.

  5. List your home and tour prospective homes

    Put your house on the market and tour places that catch your eye. Here’s how to negotiate on a home price.

Financing options for selling and buying a home at the same time

Traditional mortgage

Apply for a traditional mortgage. If your savings account is looking a bit thin, many mortgage lenders can be flexible on how much of a down payment they require. However, note that with less than 20% down, you will need to pay for private mortgage insurance until the lender recognizes that you have 20% equity in the house.

Contingent mortgage

You could obtain a contingency, which is a clause written into any offer you make on a new home that will void the sale if a condition isn’t met. In this case, the condition can be the sale of your current house. The drawback of this is that contingent offers aren’t as competitive as non-contingent offers.

Cash

Secure cash to make an all-cash offer on your new home. If you don’t have liquid funds to cover the entire amount, here are several ways you could get the liquid funds to do this.

Borrow against your 401(k)
If you are fully vested in your 401(k), you should be able to borrow against it without penalties. There are no loan costs and the monthly payment is usually deducted pretax from your paycheck. But keep in mind that the portion you borrow against will no longer be actively traded in the market and there may be restrictions on how much you can access.

Use equity in your current house
Get a home equity loan, home equity line of credit (HELOC), or do a cash-out refinance on your current property. Then when your house sells, you can clear those debts.

Get a gift
On your birthday or holiday wish list, ask for cash. The gift-giver will likely have to sign a gift letter saying that the sum is, in fact, a gift, and not a loan.

Get a bridge loan
A bridge loan is one of the most expensive alternatives. It is a short-term, interest-only loan. They often don’t last more than 12 months and have higher interest rates than a home equity loan. However, since the terms are interest-only, the total combined payment between your new first mortgage and the bridge loan may be lower than the payment on a home equity loan.

Other alternatives

Here are some more rare financial alternatives.

Refinance as an investment
You could refinance your house as investment property, keep it as an asset and lease it rather than sell it.

Do a sale-leaseback
This is when you sell an asset and then immediately lease it from the new owner. Doing this can provide cash from the sale — freeing up money for a down payment, make your debt-to-income (DTI) more favorable for your new mortgage and allow you to remain living in the house. However, you may have to agree to a lease period of a year or more and this is not common in personal residential real estate, making it potentially hard to find.

When to buy and sell a house at the same time

Be sure you give yourself time to review the pros and cons involved in buying and selling your home. To avoid potentially digging a financial hole, analyze your capabilities. Do you have enough cash for a down payment? Could your budget handle two mortgages for a short time? If the answers are yes, you may be good to go!

 

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