December 30, 2022
Buying and Selling a Home at the Same Time
In a perfect world, moving would be as simple as buying the house of your dreams, immediately selling your current home, closing on both, and moving on the same day. Reality tells us the process is rarely that easy. Multiple parties, financing, and inspections are just a few of the complexities that throw things out of sync. So is it possible to buy and sell a house at the same time?
This question really comes down to whether you can – or should – buy before you sell. After all, that would allow you to sell quickly, avoid multiple moves, and avoid paying for temporary housing too. It also puts you in a position to shop around for the perfect place without the pressure of having to get out of a home you’ve already sold.
Pitfalls of buying a new home before selling your current home
Those benefits are appealing, but they do come with potential drawbacks. Let’s look at some of the most common dangers of buying a house before selling.
It’s a stretch for many people to get approved for one mortgage. Are your finances strong enough to add a second? Lenders may be wary of a higher debt-to-income ratio (DTI) caused by your original mortgage – even if you hope that home will sell soon. And if you are approved, the terms may not be as appealing as they could have been without the other loan. You may end up with a higher interest rate and therefore a higher loan amount to pay off.
Your goal is to make a quick sale, but there are no guarantees of avoiding two mortgage payments for months or even years if it ends up being difficult to sell your home. That can add up quickly and cause financial hardships on families that could use the money for everyday expenses or paying off other debts.
Do you plan to use the profit from your current home sale toward your new house? Buying before you sell means you might not have an accurate gauge on how much home you can actually afford. Especially when your dream home is staring longingly back, you run the risk of overbuying.
Doom and gloom aside, you do have options available to make the buying and selling process more seamless. There are even times it makes sense to buy first, such as when you're financially prepared, market conditions are right, and you can harness the right tools to reduce risk. Here’s how to buy another house before selling yours.
If you’re considering putting an offer on a house before selling yours, start months in advance with a careful look at your budget. Can you cut back on eating out and pause subscriptions to start building up savings and paying down debt? A strong financial foundation will put you in the best position possible.
Are you going into this process during a seller’s market, when inventory is low and you’re likely to quickly receive multiple offers and get top dollar for your current house? Or is it a buyer’s market, in which selling can be slower and less profitable, but you may land a deal on your new place? Your strategy will depend on what’s happening in the local housing market, often driven by our country’s economy as a whole.
One solution can be to include one or more contingencies in your offer. When you do this, the sale will not go through if your condition (contingency) is not met. Contingencies save you from a purchase that may lead to financial hardship.
Here are two common contingencies to consider in this situation:
- Financing Contingency – Gives you time to apply for and receive approval for a mortgage to purchase the home. This way, you can take the offer to your lender to provide assurance that you won’t be carrying two mortgages indefinitely.
- Home Sale Contingency – Gives you a specific amount of time to find a buyer for your current home. This way, when you find the home you want to buy, you can request extra time – often 30 to 90 days, according to HomeLight – to sell your home before closing on the new one.
If you need funding to put a down payment on a new house before your current one sells, special financing options may be your secret weapon. You may be able to tap into your current equity through a home equity line of credit (HELOC), home equity loan, or cash-out refinance.
Additionally, some lenders offer a mortgage bridge loan, which uses your current home as collateral to secure funding for a down payment on your new house purchase. Be aware that bridge home loan rates are generally higher than other financing types and terms are typically limited to six to twelve months. A good lender will help you weigh your options to decide what choice makes sense for you.
While tricky, it is certainly possible. As we’ve discussed, the more important question is whether buying a home before selling is feasible. Which, like so much else, comes down to your unique situation.
Want to know the essentials for selling your home? Check out our free eBook.
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