Simultaneously buying a new house while selling your current one can be a stressful, complex and challenging process – to say the least.
You’re going to have a lot of “moving parts” in this whole process, so it requires careful planning, organization and a thorough understanding of the intricacies involved. Coordinating the timing, finances and logistics can be stress inducing, but good preparation will help you navigate this transitional period smoothly.
Let’s delve into the biggest things you need to know and explore a few tips to get you through this complicated period.
Take Stock of Your Situation and Goals
Because everyone has unique circumstances going into the process, it is vital to take a good look at elements like the following:
- Your current financial situation: How much flexibility do you have with the down payment? How good is your credit? Are you pre-approved for a loan? What kind of cash do you have for a down payment? What kind of equity do you have in your current home that might be leveraged toward a deal on a new home? If your current home doesn’t sell right away, how well can you manage two mortgages?
- The current market conditions: If there are more homes up for sale than there are potential buyers, that’s a buyer’s market. You may be faced with a long wait once you list your current property before it sells. If the housing industry is very tight, with few listings and lots of would-be buyers, then you can probably expect a quick sale.
- Your timeline: How much flexibility do you have when it comes to the overlap between buying and selling? Do you need to accomplish both within a fairly narrow window or are you comfortable with a gap? How comfortable are you with the idea of finding temporary housing, if need be?
Once you have a clearer picture of these things, you can make informed decisions about how to proceed.
Decide on Your Approach to the Process
Now comes the hard part: Deciding on your approach to tackling the whole situation. Generally, you can do any of the following:
Buy Before You Sell
This is a good approach, especially if you have the means and you don’t want to be rushed when you’re looking for your next home. It can make moving a much more relaxed process and you don’t have worries about (or the expense of) trying to find temporary housing between homes. It can also make it easier on your real estate agent since it will be easier to stage and show your current home once you’ve moved into your new one.
The big drawback, of course, is that – absent a lightning-quick sale of your current home – you will be paying two mortgages, plus the utilities and maintenance costs for both properties for a while. This makes it important to look at all your financing options very carefully.
In these kinds of situations, you may want to consider buying with a bridge loan, which is essentially a short-term, high-interest loan that’s designed to give you the cash you need for your new purchase. Home equity lines of credit (HELOCs) and home equity loans can both also be useful options if your current home has a lot of equity, but you don’t have a lot of cash on hand.
Buy With a Sales Contingency
This is a great approach when the market favors buyers because sellers (understandably) don’t like this method as much.
When you buy with a sales contingency, you essentially have to get the seller to agree to let you back out of the deal if your current home doesn’t sell within a certain time period. That’s less stress for you, but more for the seller, so you may have to offer something in return, e.g., a slightly higher bid, to get them to take the deal.
Sell Before You Buy
If the stress of balancing the cost of two homes or making a deal on the home of your dreams with a sales contingency on your existing home doesn’t appeal to you, it might be better if you sell your existing house before you purchase your next home.
This tactic has its advantages, too, in that it usually makes it much easier for you to afford the next home. That can increase your buying power and make you a more attractive bidder to sellers simply because you won’t have an existing mortgage.
The drawback, of course, is trying to figure out where to live for a while if the timing isn’t 100% perfectly coordinated between the closing date of your current home and the move-in date of your next home.
Sell With a Condition
If you’re in a seller’s market or your buyer is very flexible, you may be able to sell your home with some kind of protective clauses in place:
- Ask for an extended closing period: This may be easiest if your buyer is also juggling an existing home with their new purchase since it gives everybody a little more time to secure financing or get through home inspections.
- Ask for a rent-back period: This is an agreement in the sales contract that allows a seller to rent the home after the sale for a few months. For the inconvenience, you may have to pay a little more than you’d normally pay for a rental, but it can make your home-buying process and the move much less stressful.
While it can be a complex endeavor, buying one house and selling another simultaneously can also be an exciting time of new beginnings. With proper preparation and a supportive team, you can navigate the process with confidence and look forward to settling into your new home. For best results, make sure that you talk with your real estate professional and your mortgage expert about your situation.
Your careful planning and patience will allow you to soon enjoy your new home and bid a fond farewell to the one you’ve left behind.