Are you thinking of buying a home and selling one at the same or near time? Wondering which one to do first? Are you worried that you won't be able to afford two mortgages until your current home sells? Or anxious that mortgage companies won't grant another mortgage? Or worse still, not sure how to juggle two escrows? These and more could be some of the questions haunting you if you are buying and selling real estate at the same time.
Buying a new home is often one of the most exciting events a family experiences. But this excitement can be replaced by anxiety for buyers who are selling a house at the same time. Many borrowers do not think of buying and selling a home as one full transaction, and therefore, they tend to think of the "buy" and then they are chasing the "sell" transaction. Here are a few tips that might help.
1. Contact a realtor
Your best starting point would be to find a qualified real estate agent, and get an estimate of what your house is worth and how quickly it could be sold. Next, you might get the realtor to show you homes on the market according to your needs and wants and get an estimate of how quickly you could find such a home.
2. Get buyers pre-approved for a mortgage
Get a mortgage loan consultant or expert to pre-approve prospective buyers for you. As a seller, you should negotiate only with buyers who are pre-approved to purchase your house. That way, if the buyer can't proceed, you haven't wasted much time and, when you make an offer on a new home, you will know that the financing conditions on your existing home have been satisfied. Also have the loan consultant pre-approve you. As a buyer, you want to know how much house you can afford, so you can present yourself to sellers as a qualified buyer to purchase the house you want.
3. Build buy/sell contingencies into the agreement
While you may put your home up for sale right away, make the sale of your home contingent on your finding a new home of your choice. In other words, even though your home sells, the sales will not close unless you have purchased another home. Alternatively, make your buy offer contingent upon the successful sale of the property you currently own. This contingency prevents the buyer from forfeiting the earnest money deposit, or making two mortgage payments at once. Then you should try to get the escrows to close as close together as possible. In some competitive markets, buyers make contingency-free offers in order to be more attractive to sellers. If that is the case, follow the next strategy given below.
4. Consider "bridge financing" or alternative financing
When you are buying in an aggressive sellers' market, you may need to make your purchase before selling your current home. In this case, you can borrow a down payment until your existing home sells. This is called "bridge financing." Bridge financing is a loan for the down payment on a new home backed by the equity in your old house, normally at prime plus two percentage points. If you have good credit but your income isn't high enough for you to qualify to carry a bridge loan plus both mortgage payments, consider a no-ratio mortgage, which doesn't take into account your debt-to-income ratio. Rates are higher but you can refinance later.
Alternatively, you may be able to draw on a home equity line of credit on your old home. Rates are often more than a point lower than on bridge loans. But you might pay a penalty fee if you sell the house less than a year after taking out the line of credit.
5. Decide whether to buy or sell first
In an aggressive buyers' market, list your house for sale long before you plan on buying, if possible. When you get an offer, negotiate the escrow period to accommodate your purchasing needs. Check what's available in your price range before putting your home on the market. If there's little available, i.e. the sellers' market is strong, you may want to buy first and ask for a long close. Anyone using this strategy should plan to obtain interim financing. It is advisable to do this even if the former home is sold, but not yet closed. If you make a non-contingent offer and the sale of your existing home falls out of escrow, you could lose the deposit you placed on the new home.
6. Allow extra time in the buy-sell process
Allow extra time in the home buying and selling schedule if you are buying and selling at the same time. Don't overlook a slightly lower offer that allows you more flexibility with respect to your closing date. For example, if your top bidder has to sell his current house first, you might prefer to deal with a first-time homebuyer or renter who can buy immediately.
Leave comments on your buy-sell experience or continue on to Part 2 of our Buying and Selling Real Estate Simultaneously series.