How To Sell and Buy a House at the Same Time
Are you a homeowner thinking, or even dreaming of upgrading to a new home? Maybe a bigger home or ready to downsize homes? It can be exciting to find your next home, yet overwhelming and stressful to think of selling your current home at the same time. Fear not, today I am here to guide you through the options of how to sell and buy a house at the same time, without the uncertainties. Additionally, I will share a few financing options and information to help make the process more manageable. So, grab a cup of coffee, sit back, and we will get started on this journey of options to your new home!
Buy First, Sell Later
Option 1: Buy First, Sell Later. The first option you have is to buy your new home before selling your current one. This provides you with the safety net of not worrying about being homeless. You can move into your new home, directly from your current home, in a timeline that works for you. This allows you the time to both clean and finalize any repairs needed on your current home. Then when ready, listing it for sale. Once cleaned and staged, this allows your current home to show in its best light to your new buyers.
This is actually the option my last clients chose. It worked best for them as it removed the stress of trying to move out and into a new home within 1-2 days. They were able to time the move between homes, into their work and life schedules, reducing the stress of their move. The benefit of this for them, outweighed understanding that they would be carrying two mortgages with possible overlapping payments for a few months. Being that the current market is a sellers market with very low inventory, they felt comfortable with this risk.
Which leads me to the caveat of this option. Unless you have the funds to purchase a home in cash, you will need to qualify for a new home loan. If you currently have a mortgage on your home, this means qualifying for two mortgages at the same time. Having two mortgages at the same time comes with the risk of possibly having two mortgage payments due at the same time. This could occur if your current home is not sold quickly and can put a strain on some personal finances. The most common practice with this option is to qualify for a mortgage on your new home then payoff your current mortgage once your departure home sells.
Loan Options for Accessing Equity
Now, you may be wondering how then, you can use the equity from your current home on your new home. There are three avenues your lender can advise you on dependent on your personal situation. The first two, a home equity line of credit and bridge loan, allow you to tap into the equity of your current home prior to selling. There are financing fees to obtain and close on these loans. Both loans lean towards interest only payments while they are outstanding. And both are paid off at the time you sell your current home.
The other option is handled after you sell your departure home and is called a recast. Most lenders are able to recast your mortgage one time. This is common practice for homeowners that get a mortgage when they’ve purchased a new home, but haven’t sold their original home yet. Once you sell your current home, you will pay down the new mortgage using the equity you received from the sale of your home. You then call your lender and request a recast of your mortgage. When your lender recasts your mortgage, they re-amortize your mortgage payments with the new lower balance. This lowers your monthly payments on the new loan since your principal balance was paid down. The interest rate and term remain unchanged.
Sell First, Buy Later
Option 2: Sell First, Buy Later. If you are not able to qualify for two mortgages simultaneously, this is an option that may work for you. This second option is to sell your current house first, then look for a new home. It provides you with a clear idea of how much money you’ll have from the equity in your house, to put down on your new purchase. However, it does come with the risk of being homeless and needing to rent or move in with family for a short period of time. This also carries a realty of moving twice. Once out of the home into your rental or storage unit and then secondly, into your new home.
When taking this route, your first step is to find a place to rent while also preparing your home for sale. Once you find a place, you can list your home for sale and move into the rental. This removes the stress of having two mortgages payments. It also provides you more time to find a home. Which in a limited inventory market can be tough. This has been the popular avenue for sellers during the craze of the market these last few years. It allows you the seller to move out and sell your home before shopping for a new home. It also provides you the opportunity to put your best foot forward in being competitive against other buyers.
How you structure your purchase offer, is important. Having sold your home first allows you to make a purchase offer with a large down payment on the new home, from the equity of your sale. It also allows you to avoid being contingent on selling your home in order to purchase the new home. When sellers compare multiple buyer offers against one another, contingent offers are not always looked on favorably. More often then not, in multiple offers situations, contingent offers lose out to offers without such requirements.
Option 3: Simultaneous Closing. There is another approach to selling your home first and then buying. Like the previous option of selling first and buying second, closing simultaneously allows you to simply have one mortgage. It still carries a risk of needing a place to stay between homes and possibly moving twice, but it greatly mitigates this risk. When closing simultaneously, you use contingency clauses. Two clauses allow you to list your home first, then shop for a home. The last clause, is opposite, you find a home first, then list your home for sale.
The first contingency is to list the home with language that you will only sell your current home consecutively with the purchase of your new home. This lets buyers know when they offer, it may not be a quick closing. Closing will occur only after you find and go under contract on your new home. As soon as you do accept an offer on your house, you will start looking for a new home. This comes with some pressure, as you may not find exactly the type of home you are looking for if inventory on the market is limited to choose from. It also carries the risk of your buyer moving on to another home while you are home shopping.
Once you do find a new home though, and you are under contract on your purchase, the closing dates on both transactions are negotiated to close the same day or within a day of each other. Your REALTOR may also be able to help negotiate your staying in your departure home 2-3 days after closing. This allows you a couple of days to move between homes, before your buyer takes possession and moves in.
Here in the first quarter of 2023, inventory has remained pretty low. There has not been as many buyers on the market resulting in fewer instances of multiple offers on homes. Due to this, we are seeing more sellers willing to accept offers in which the buyer must first sell their departure home before they can close on the new purchase.
The second contingency option is to again, list your home first. Here, you use language reflecting the need to rent your home from the buyer, up to 60 days after closing on your sale. Meaning the buyer doesn’t get possession until after your agreed rent back period. This provides you a greater window of time to find a new home, go under contract and close on your purchase before moving out of your departure home. Closing on the purchase can occur anytime after the close of your sale and before the end of the negotiated rent back period. You then only move once, from your current home to your new home.
The risk of this option is that you will need to find a home you like and go under contract, in a short time. You may have up to 30 days after closing on your sale, to do this, but if you are unable to close on a new home before your agreed rentback term ends (which cannot exceed 60 days if the buyer obtained financing), you will need to find short term housing, meaning a rental, family or friends, between moving out of your home and into your new home.
The third contingency option is to go under contract on a purchase, and then list your home for sale. I have successfully closed with clients using this option, but to do so, there are a few steps to be taken care of, previously to home shopping.
The first thing to do is prepare the home for sale as if it is going on the market. This includes pricing the home, having the photography and drone footage completed and the marketing ready, for the home to hit the market. Now you can shop for a new home.
In this option, we use the contingency clause when you offer on your new home. When offering, the sale clause is utilized. This states that you must sell your home in order to purchase and that you will put your home on the market within 24 or 48 hours. There is additional language in regards to the timeline you must accept an offer on your sale. This timeline is negotiated between you and the seller. This option allows you to find a home you like before having your home on the market, but carries a few risks. A risk of losing the home if you do not have a buyer within a given time window on your sale and a risk that you may need to accept an offer with terms lesser than you had hoped on your sale.
As you can see, there are several options when it comes to how to sell and buy a house at the same time. Whether you choose to buy first, sell first, or do a simultaneous closing, the key is to plan ahead, explore your financing options, and work with an experienced professional who has a ton of tools in their wheelhouse to make the process as smooth as possible.
Speaking of tools, now that you have an idea of how to sell and buy a house at the same time, you’ll want to make sure your home looks its best! Click HERE to view my article “Easy DIY Home Staging Tips When Preparing to Sell your Home”. Or click HERE to watch the video on YouTube. Here I provide you with the 10 tips I share with all my sellers. Valuable tips and tricks that will make your home stand out and appeal to potential buyers. Trust me, you don’t want to miss it! As always, if you are thinking about making a move, please reach out, I would love to assist you.