Buying and Selling a House at the Same Time
If you sell first, you create a time crunch for yourself and may end up choosing a new house that's not quite what you wanted or paying more than you had intended. If you buy first, then you face the trouble of paying two mortgages while trying to sell your old home.
Follow the tips below to help you through the tricky ins and outs of buying and selling a house.
Explore the Housing Market
Before you do anything, you need to get a feel for the housing market. Look around both your current area and the area in which you're looking to buy to see what comparable homes are selling for. This will help you calculate how best to sell high and buy low.
Also, figure out if the current market is a buyer's market or seller's market. That way you can make the best of whatever situation you find yourself in.
A buyer's market exists when the market is "cold." That is, there are many homes on the market to choose from and homes are selling slowly. Most sellers aren't getting multiple offers so they may be more willing to make a deal.
In this situation, it's better to be a buyer. You have a plethora of houses to choose from at great prices. The downside is that your old home might be harder to sell. You can protect yourself in this situation by making your buyer's offer on your new home dependent (contingent) selling your old home. A seller who is having trouble in a cold market will usually be willing to wait for you to sell your home.
A seller's market is "hot." There are fewer homes on the market, they are selling fast, and often with multiple offers. There may be bidding wars among buyers.
In this situation, your better position is as the seller, and selling your home will be easy. Your concern now will be finding a new home before yours is sold. There are two ways you can protect yourself in this situation:
- Negotiate with the buyer to have the contract state that the closing is dependent upon your closing on a new home. Because buyers in a seller's market are in a hard position, they will usually be willing to wait for you if they are guaranteed a sale.
- Negotiate a temporary leaseback with the new buyer. In this situation, the old owner becomes a tenant of the new owner, paying rent for continued use of the home for a specified amount of time until they move into their new home. This could be days, or weeks, or even a few months.
Owning Two Houses at Once: Bridge Financing
Timing the transition of homeownership can be tricky. You could end up not owning a home for a short amount of time. You will have plenty of money in the bank from the previous sale to find a temporary living situation.
On the other hand, if you complete the purchase of your new home before your existing home is sold, you may own two houses at once. Now your housing expenses are twofold. You may need bridge financing to pay the extra mortgage.
Follow these tips to help you through the potentially expensive transition between buying and selling a house.
Option 1: Short-Term Loan From Friends and Family
Borrow the down payment on the new home from a private person, such as a relative or friend. Emphasize that this is a short-duration loan and offer them an attractive interest rate. Give them a promissory note, with your new home as collateral. Arrange the loan so that you will owe nothing until after your first home closes and you collect enough from the proceeds of the sale to be able to fully pay off the promissory note.
Option 2: Take Out a Bridge Loan
A home equity loan or home equity line of credit (HELOC) are two options often used to make new investments or upgrades to your life. But these options are unavailable to you if your home is on the market.
A bridge loan is a temporary loan that bridges the gap between when you close on your new home and when you have cash in hand from the sale of your old home to pay off or finance a new mortgage. You are basically getting a short-term loan (up to one year) using your old home as collateral and repaying that loan when your old house sells.
Qualifying for a bridge loan can be pretty tough, and bridge loans have higher interest rates. Most lenders require your income to be high enough to pay for both mortgages until they are fully paid off. If you qualify and you can afford the extra fees, however, a bridge loan is a great help in the transition between buying and selling a house.
Are You Buying and Selling a Home? Get a Free Attorney Match
If you're a current homeowner looking to upgrade or move to a new area, ideally you can sell your home first in order to have money for the down payment on the next home. But life doesn't always go according to plan and you may need to 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.