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If you already own a home, the premise of buying another house can be pretty daunting.
Do you sell your home first and live in limbo while looking for another, or do you buy now and foot the bill for two mortgage payments until you’re able to sell? Can you time it perfectly and do both at once?
The truth is you have several options when selling a home and buying another. The best choice really depends on your personal situation, your property (and the market it’s located in), and your budget.
Let’s look at all three options in-depth.
Selling your house before buying a new one
Many people choose to sell their existing house first. This allows you to have the sale proceeds in hand when searching for that dream home, and it significantly reduces the financial stress of the situation. There’s no managing two mortgage payments or dealing with closing costs while maintaining two houses. It’s simple, straightforward, and easy to budget for.
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The biggest downside to this approach is that it leaves you homeless, for lack of a better word. After you sell your home and while you hunt for another, you’re left in limbo, living in your parent’s basement or on a friend’s living room couch. If you have a family, pets, or lots of belongings, that can be a pretty inconvenient way to live — especially without an end in sight.
You also have to move twice. First, to your temporary housing, and then again, once you find your new property. That means twice the hassle and twice the costs.
Finally, it can make you feel rushed or under the gun. With your old house sold and no permanent place to live, the stress could push you toward purchasing a home you’re not quite in love with or ready for.
Pros and cons
Less financial stress
Leaves you living in limbo
Requires two moves
Frees up cash for your new home purchase
Doubles your moving costs
Avoids two mortgage payments
May make you feel rushed to purchase your new property
May be easier to qualify for a new mortgage
May require added storage costs
Tips if you’re selling first
In the event you do opt to sell your home first, there are a few steps you can take to ensure the process goes as smoothly as possible.
Arrange temporary housing: Before you list your home, make sure you have a temporary place to live once the property sells. This could mean living with a friend or family member, or it might mean renting a hotel room for a few months while you look for a new house. Whichever option you choose, have a plan (and financial resources) in place to make it happen.
Know. what you’re looking for in a new house: Go ahead and start narrowing down your list of must-haves, and research potential neighborhoods and communities. As soon as you’ve accepted an offer on your existing house, you should start hunting for your new property right away to minimize your time in limbo.
Be ready to buy: Have a mortgage lender in mind and get preapproved for your loan once you choose one. You should also set your budget, preferences, and timeline, so you can start viewing relevant properties as soon as your old house sells.
Consider a lease-back: If the buyer of your old house isn’t on a tight timeline, you may be able to negotiate a lease-back. This allows you to “rent” the property from the new owner for a certain amount of time while you look for a new home. You may need to make payments to the buyer in order to do this, or it might mean reducing the sales price or other concessions.
You should also arrange for some sort of storage solution, especially if you’ll be staying in a hotel or with friends. Portable storage pods are an affordable, easy solution, and they’ll make your final move easier, too.
Buying a house before selling
There are a lot of advantages to buying your new home first, before selling your old one. Primarily, it makes the move easier. You’re able to take your time, move your belongings to the new place on any schedule you like, and avoid living in limbo while you wait for that old house to sell. It’s also a good choice if you’re on a tight timeline. If you know you need to be in a new city for a new job by a certain date, buying first can help ensure you’ve got a place to live by your set-in-stone deadline.
On the financial side, it’s another story, though. Buying your new home first takes serious financial resources. Not only will you still have your existing mortgage payment, but you’ll have a new one, plus closing costs, your down payment, moving expenses, and upkeep and maintenance on both properties. It can be a lot to handle, especially if you’re on a tight budget or limited income.
Buying first may also make getting a mortgage harder. Because you still have the existing mortgage debt to your name, your debt-to-income ratio could be much higher. That could mean a lower available loan balance for your new purchase, higher interest rates, or even not qualifying for a loan at all. According to Quicken Loans, in order to qualify for most mortgages, borrowers should have a debt-to-income ratio no greater than 43%.
Pros and cons
An easier move
Two mortgage payments
More control over your timeline
Higher debt-to-income ratio
No living in limbo or with friends and family
More financial stress
A more relaxed home buying process
Difficulty qualifying for a mortgage
Potentially a higher mortgage rate and lower loan balance
Difficulty coming up with down payment
Tips if you’re buying first
If you do decide to buy your new house first, there are a few ways you can make the process easier — both on your household and your finances.
Rent out your old property: Once you’ve moved into your new place, consider leasing out your old house to a temporary tenant. You could also rent it on Airbnb, VRBO or another short-term rental platform. This will allow you to generate income to maintain the home and pay its mortgage while you look for a permanent buyer.
Consider a contingency clause: When submitting an offer on a new house, you can include what’s called a sale contingency. This states that your offer is pending the sale of your current home. If your home doesn’t sell in the specified timeframe, you can back out of the deal unscathed. Though not every seller will agree to these terms, but if the market is slow there’s a chance they’ll consider it.
Consider a home equity loan or bridge loan: If you have equity in your current home, you could free up cash to cover your down payment, closing costs, and additional expenses while maintaining both properties. A bridge loan makes it possible to finance a new house before selling your current home. Both options may have high interest rates, so take a closer look with a financial advisor before going these routes.
Sell your house to an iBuyer: An iBuyer like Opendoor can purchase your old home in as little as 14 days without all the hassle and headache of the open market. Just provide some details about the property, and if it’s eligible, Opendoor will make a cash offer to buy the house outright — no showings or marketing necessary. You can even choose your own closing date.
At the end of the day, buying your new home first is just one of three options you can choose from. Make sure you consider all your choices before deciding which route is best for your financial goals.
Buying and selling at the same time
Finally, you have a third option: you can buy and sell at the same time. It might sound complicated, but with the right resources in place, it can actually be quite easy.
Traditionally, selling and buying at the same time has been difficult. You had to time your two transactions perfectly, negotiating with the buyer for a later closing date and pushing your lender to work fast to prevent any lag time between sales.
Fortunately, iBuyers have made this process much simpler. With programs like Opendoor’s trade-in offering, you can:
Get a free cash offer in just 24 hours
Make an offer on an existing Opendoor home (and, in select cities, an offer on any home on the market)
Schedule your closing dates for both transactions simultaneously
There’s even an option if you want to sell your existing home and build a new construction property simultaneously. Both options let you choose your closing and move-in dates, as well as avoid selling hassles like showings, staging, open houses, and more.
Which is the right move for you?
The best option for you depends on a lot of factors. You’ll want to think about your timeline, your financial situation, your local housing market, and more.
To help gauge the right route for your home sale, ask yourself these questions:
What can I afford? Can you afford to manage two mortgage payments at the same time? Can you handle maintaining multiple properties, as well as the taxes and expenses that come with them? Know your budget, as well as what your expected costs might be in all three scenarios.
How competitive is the market? If you’re in a hot, in-demand market, it might be harder to find a home quickly. You may want to sell first to maximize your profits, and then delay your purchase until the market cools.
Are there iBuyers available in my area? iBuyers are quickly expanding to markets across the country, but they’re not present everywhere just yet. See if we’re in your neighborhood.
How quickly do I need to move? Are you working on a set timeline, or do you have more flexibility? If you’ve got a deadline, you may need to buy first in order to ensure you meet it.
What condition is my home in? Is it move-in ready, or does it need lots of repairs and work? If it’s the latter, that will mean more expenses, a lower sales price and, most likely, a longer time on the market. You might consider selling to an iBuyer who will handle the dirty work on your behalf.
The bottom line is there’s no wrong or right choice when it comes to selling your house and buying another. Take time to consider the full picture, and know the pros, cons, and costs that come with each option.
By Aly Yale
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