Not everyone is a first time homebuyer. Many current home owners are considering scaling up for more room, or down for less maintenance and utility costs.
If you already own a home, but are looking for another one, there are certain aspects of the purchasing process that may be a bit more challenging. Questions like "Can I sell my home while looking for another? Or, can I make an offer on a new home if my home has not sold yet? spring to mind.
The good news is that you are not the first home buyer and seller to face this issue. There are many other prospective home buyers just like you, along with options on how to handle the situation. Here are four viable options for buying a new home when you still have one to sell - and the pros and cons of each one.
If you have questions as to which option may work best for you, speak with your lender, financial advisor or real estate agent to understand how each may apply to your specific situation.
Add a Contingency to the Purchase Contract
If you find a home you wish to buy but still have one to sell, or are in the process of selling it, it's possible to negotiate a contingency into the contract. This contingency simply states that you agree to purchase the home, but need to sell your own home first before completing the transaction.
This option gives you time to sell your home after the contract is negotiated and in place. It's a positive course of action if you don't want to sell your home first then buy later. Also, if both homes close at or near the same time, it allows you to move directly from your old home to your new one.
Also, in many cases, a home buyer must sell their existing home for the downpayment monies for the new home. Many buyers also cannot afford two mortgages, so the existing home must be sold prior to purchasing another.
An offer with this type of contingency may be less attractive to the seller than an offer from a buyer who can close right away. This is true especially when buying in a hot, popular area, a contingency such as this may take your offer out of consideration.
Acquire a Bridge Loan
Sometimes, an option for buyers is to secure a short-term loan until their current home sells. This is called a bridge loan. A bridge loan is typically set for six months and secured by your present residence. This loan covers the gap in time of owning both your old home and your new home.
A bridge loan is sometimes more palatable to the seller during negotiations than writing in a contingency to sell your home. A bridge loan allows the process to move forward without fear of losing the home of your dreams.
Bridge loans are usually expensive, sometimes two percentage points higher than a regular mortgage. They may also be risky if your current home is in a slow moving area. If your home doesn't sell for a year, for example, the bridge loan can end up costing you a bundle.
Become a Landlord
If you don't want to sell, (or cannot for whatever reason) your current residence, think about finding a renter and becoming a landlord. In some cases, renting out a house brings in enough money to cover the mortgage payment, taxes, and insurance.
You can build equity with someone else's money, and create a tidy real estate investment. In addition, you don't need to worry about selling the home at all, so you are free to buy a new home without the stress of the selling process.
However, check with your lender as there are rules and time frames about turning your existing residence into a rental home and then applying for a new mortgage.
Being a landlord is sometimes fraught with challenges from renters who are destructive, unreliable, and may not pay their rent. If the idea of collecting rent, being firm when needed, or dealing with potential conflict causes stress, then maybe renting your house out is not the right move for you.
Pay Both Mortgages
In a seller's market, you may be confident enough in selling your existing home while being determined to buy a new home, that you are willing to take on two mortgage payments until your home sells. Provided that you can show enough income and your credit score is high enough, you may be able to get a loan for the second home before you sell the first.
Such a scenario is a way to avoid losing the home to other buyers. If you are moving into a hot neighborhood, you may be competing with multiple offers.
Being able to move forward without obstacles may make you more attractive to the sellers than other buyers trying to snag the residence.
Depending on your personal financial situation, this decision might be risky (assuming your mortgage lender will permit you to have two mortgages.) If paying two mortgages causes too much financial stress, this may not be the best solution for you.
Before deciding how to proceed with purchasing a new home if you have one to sell, here are a some other considerations.
First, understand your neighborhood and your local real estate market. Is your current home in a hot, desirable neighborhood, or do houses languish for months with for sale signs in their front yard?
Do some research, and consult with a reputable real estate agent. Have him or her show you the average selling time in the neighborhood, and explain the overall trends. This will help you prepare for the amount of time it will take to sell.
Second, closely analyze your finances. The end goal is to not get in over your head financially. Selling your home while simultaneously buying another one is typically easier if you are well-employed with a tidy nest egg at your disposal.
Examine your fixed expenses, your savings, and your present income, along with any bonuses or commissions due you in the next six months to determine your financial strength and weaknesses. Your financial health is instrumental in determining which option best fits your purchasing timeline.
Buying a new home when you still have one to sell demands a keen understanding of your options, your neighborhood, and your complete financial picture. It's imperative to consult with real estate professionals, such as a reputable real estate agent and a well-informed mortgage originator or broker. Both can advise you on the finer points of the available choices.
Weighing your decision, and its pros and cons, enables you to reach the smartest decision for you and your finances.