Listing your current home for sale while purchasing a new property can be a real challenge if you don’t have all your ducks in a row. Unless the closing dates between the two deals coincide perfectly, there’s always the chance of either carrying two mortgages or being stuck without a place to live until the deal on your new home purchase closes.
To ensure everything runs seamlessly, a few steps should be taken. Here are some factors to consider when buying and selling a home simultaneously.
Understand Your Market
Your real estate agent is a critical ally when entering the real estate market and will help you gain a full understanding of the current market you’re dealing with. Knowing the climate of the market is essential before buying or selling and will help arm you with important information needed to make sound purchasing and selling decisions.
More specifically, it’s crucial to determine whether or not you’re working in a buyer’s or seller’s market, as either will determine how you should approach your purchase and sale tactics. Your strategy will depend on who has the upper hand in the market, and in many centers across California, the power has been with sellers over the recent past.
From a seller’s standpoint, this is good news for you. But as a buyer, you may need to take extra steps to ensure you come out on top when competing against other buyers. One way to do this is to consider a few different properties to put an offer on in case you lose out on a bidding war. That way, you’ll minimize the odds of being left without any options after your current home has sold.
Try to Coordinate Closing Dates
This might sound obvious, but trying your absolute best to coordinate the closing dates between your current home and your new purchase will make things a lot easier for you. The closing date of your current home should ideally come shortly after your new home. Lining up the buying and selling closing dates can be a more realistic feat if you are active in both the buying and selling process at the same time.
For instance, it’s essential to start preparing to purchase a new home while being active in the sales process of your current home. Put yourself in the position to be ready to purchase by keeping your finances in order, ensuring your credit score is in good standing, and speaking with a mortgage specialist to prepare for your new purchase.
Meanwhile, you should also take steps to keep your home clean and clutter-free, and perhaps have your home professionally staged to ensure that it stands out in a positive light to prospective buyers looking in your neighborhood. In the meantime, your real estate agent will be working hard to market your property to make sure it doesn’t take any longer than necessary to find the right buyer.
Make Your Offer Contingent on the Sale of Your Home
You could consider inserting a contingency in your purchase offer that makes the deal conditional upon the sale of your current home. If you happen to find a home to purchase before you sell your existing home, this contingency will give you the chance to find a buyer for your property before the deal on your new home purchase closes. This is usually an option to consider if you feel that you’re much more likely to find a new place a lot quicker than finding a buyer for your existing home.
But while this might sound good in theory, it often does not work out, especially in competitive seller’s markets. Sellers are typically not fond of these types of contingencies as they can drag out deals. In the meantime, sellers may be missing out on other potential buyers that may be interested in buying their home. Speak with your real estate agent first before considering this option.
Consider a Rent-Back Agreement
Aligning both closing dates together is an ideal scenario, but it doesn’t always work out that way. If you happen to sell first without having solidified a deal on a home purchase, you could be left scrambling to find someplace to stay in the meantime.
As a backup plan, consider a rent-back agreement whereby the buyer rents out your existing home to you for a specific time period after you sell. In exchange for allowing you to stay in the home until the closing date of your new home, you pay the buyer rent until you’re finally ready to move into your new place. With this type of arrangement, you won’t have to worry about staying in a hotel, renting another place, or asking family or friends if you can stay at their home until your new place is ready.
Come Up With Financial Backup Plans
A rent-back agreement could be an option if you sell your home before finding a new one. But on the other side of the coin whereby you find and buy a new home before selling your current property, you would be stuck with two homes, carrying a mortgage for each. In this case, you will need to have a financial plan in place.
One of the most common options for buyers is a bridge loan, which is short-term loan that’s used to cover the gap between the purchase of a new home and the sale of an existing property. This can help you avoid holding two full mortgages at the same time, which can easily happen if your existing home doesn’t sell in time for your new home purchase to close. A bridge loan is secured to your current home, and the funds from the loan are put towards a down payment on your next property.
It should be noted that not all lenders offer bridge loans. You will have to speak with your lender to see if a bridge loan is an option for you in the event that your home doesn’t sell before your new purchase closes.
Another popular option to reduce the financial burden of carrying two properties is taking out a home equity line of credit, or HELOC. With this option, your lender agrees to lend a certain amount of money within a specified term, after which that money can be used towards your new home purchase. In this case, the loan is secured against the equity in your home, which is somewhat like having a second mortgage taken out.
However, a HELOC may not be possible if your home is on the market, as most lenders won’t loan out HELOCs in this case.
Whichever option you choose, be sure to speak with a mortgage specialist and your real estate agent about ways to lessen any financial risk and strain associated with buying first before selling.
The Bottom Line
Dealing with the sale of your current home with the purchase of a new property can be a real juggling act. Such a scenario certainly requires plenty of careful planning well in advance of making any decisions. Before engaging in a purchase and sale, you’d be well-advised to team up with a seasoned real estate professional who will be able to guide you in the right direction. Only after sound collaboration with your realtor should any financial decisions be made.