Buying and Selling a House at the Same Time
If you buy first, then you face the trouble of paying two mortgages while trying to sell your old home. If you sell first, you create a time crunch for yourself. Your next house may not be the dream home you envisioned, or you paid more than you wanted.
But if you find yourself in homeowner limbo, you can still have a smooth new home purchase. The tips below will help you understand your options before entering a confusing real estate market. A real estate agent can also help you manage this tricky situation.
Explore the Housing Market
You should get a feel for the housing market before you start house hunting. Your realtor can help you understand the market.
You should compare the selling price of homes in the area you're looking to buy to similar homes where you are now. This tactic will help you calculate how best to buy low and sell high.
Also, figure out if the current market is a buyer's or seller's market. That way, you can make the best of whatever situation you find yourself in.
A buyer's market is when the market is "cold." That means sales are slow and there are many homes on the market. The advantage is that sellers may make a deal when they aren't getting many offers.
The downside in a buyer's market is that your old home might be harder to sell. To protect yourself, you can make your offer on a new home dependent (contingent) on selling your old home. A seller caught in a buyer's market will often agree to this arrangement.
You can also consider turning your home into a short-term rental, such as VRBO or Airbnb, until you can sell it. The disadvantage with short-term renting is that it can make it harder to hold an open house.
A seller's market is a "hot" market. Houses are selling fast, and sellers often have many offers from which to choose. That means there are fewer homes on the market.
In this competitive market, your concern will be finding a new house before selling your current house. Be ready to move fast when you find a place you like. Have a mortgage lender lined up with a pre-approval in hand.
But even the best prepared can find themselves without a place to live. There are two things you can do to keep that from happening:
- Negotiate with the buyer to make the closing contingent upon your closing on a new home. Buyers in a seller's market are often willing to wait if the seller guarantees them the house.
- Negotiate a temporary “rent back" with the new owners. In this situation, you become the buyer's tenant. You pay rent to stay in your old home until you move into your next home. It could be days, weeks, or even a few months.
Owning Two Houses at Once
If you buy your new home before selling your old one, you'll own two houses and possibly have two mortgages. Fortunately, you have options to deal with your new mortgage.
Home Equity Loan or Home Equity Line of Credit
A home equity loan or home equity line of credit (HELOC) is a loan or line of credit secured by the equity in your home. Homeowners often use these for home improvements. You can also use them for the down payment on your next home. But this isn't a good option because these loans often have a call provision. That means the lender can demand that you repay the loan in full at any time.
Bridge financing can help you pay the extra mortgage.
You have two options for bridge financing.
Option 1: Short-Term Loan From Friends and Family
One option is to borrow the down payment for the new home from a private person, such as a relative or friend. Emphasize that this is a short-duration loan. Offer them an attractive interest rate and give them a promissory note with your new home as collateral. Arrange the loan so you won't owe anything until after your first home closes. That way, you can use what you earn from your first home to pay off the promissory note.
Option 2: Take Out a Bridge Loan
A bridge loan is a short-term loan that bridges the period of time between when you close on your new home and before your old home sells. It can last up to one year and uses your old home as collateral. You pay off the loan when you complete the sale of your current home.
Qualifying for a bridge loan is difficult. The lender often wants you to have an income high enough to pay for both mortgages. It also usually has a higher interest rate. But a bridge loan is a great help if you qualify and can afford the extra fees.
Are You Buying and Selling a Home? Get a Free Attorney Match
First-time home buyers aren't the only people who find the buying process stressful. Existing homeowners can find it challenging to balance buying and selling homes simultaneously. Selling your current home before making the down payment on your new home is ideal. But life doesn't always go according to plan. You may be in a bad financial situation with two mortgage payments. So, you must consider your options. FindLaw's Home Buying Guide may provide the information you need.
You Don’t Have To Solve This on Your Own – Get a Lawyer’s Help
Meeting with a lawyer can help you understand your options and how to best protect your rights. Visit our attorney directory to find a lawyer near you who can help.