Buying and Selling a House at the Same Time

So, you've decided to buy a new home. Like many people, you may wonder if it's best to sell your old house before you buy your new home or vice versa.

If you buy a new property first, you face the consequence of paying a second mortgage while trying to sell your old home. If you sell first, you will need to find temporary housing. Either way, you might find yourself rushed on your decision, which could lead to settling instead of finding the dream home you envisioned, or paying more than you wanted to.

If you find yourself in homeowner limbo, you can still have a smooth new home purchase. The tips below will help you understand your options before entering a confusing real estate market. An experienced real estate agent can also help you manage this tricky situation.

Explore the Housing Market

You should get a feel for the housing market before you start house hunting. Your realtor can help you understand the market.

You should compare home prices in the area you're looking to buy to similar home values where you are now. This tactic will help you calculate how best to buy low and sell high. The advice of an experienced real estate agent is also valuable.

It's important to determine if the current market favors buyers or sellers. That way, you can make the best of whatever situation you find yourself in.

Buyer's Market

A buyer's market is when the market is "cold." That means there is a glut of homes on the market and the selling process is slow. The advantage belongs to the buyers, as they're in a better position to offer less than the asking price.

The downside in a buyer's market is that your old home might be harder to sell. To protect yourself, you can make a contingent offer on a new home. This means the offer is dependent (contingent) on the sale of your old home. A seller caught in a buyer's market will often agree to this arrangement.

You can also consider turning your home into a short-term rental until you can sell it. The disadvantage of short-term renting is that it can make it harder to hold an open house. A realtor can help you determine if this option can work for you.

Seller's Market

A seller's market is a "hot" market. Houses are selling fast, and sellers often have many offers from which to choose. That means there are fewer homes on the market.

In this competitive market, your concern will be finding a new house before selling your current house. Be ready to move fast when you find a new home you like. Have a mortgage lender lined up with a pre-approval in hand. Even better, have a cash offer ready if you are able.

But even the best prepared can find themselves without a place to live. There are two things you can do to keep that from happening:

• Negotiate a sale contingency. Buyers in a seller's market are often willing to push back the closing date if the seller guarantees them the house.
• Negotiate a temporary “rent back" with the new owners. In this situation, you become the buyer's tenant. You pay rent to stay in your old home until you move into your next home. It could be days, weeks, or even a few months.

Owning Two Houses at Once

If you buy your new home before selling your old one, you'll own two houses and possibly have two mortgages. Fortunately, you have options to deal with your new mortgage.

Home Equity Loan or Home Equity Line of Credit

A home equity loan or home equity line of credit (HELOC) is a loan or line of credit secured by the equity in your home. Homeowners often use these for home improvements. You can also use them for the down payment on your next home. One drawback is that these loans often have a call provision. This means the lender can demand that you repay the loan in full at any time.

Bridge Financing

Bridge financing can help you pay the extra mortgage.

You have two options for bridge financing.

Option 1: Short-Term Loan From Friends and Family

One option is to borrow the down payment from a private person, such as a relative or friend. Emphasize that this is a short-duration loan. Offer them an attractive interest rate and give them a promissory note with your new home as collateral. Arrange the loan so you won't owe anything until after your first home closes. That way, you can use what you earn from your first home to pay off the promissory note.

Option 2: Take Out a Bridge Loan

A bridge loan is a short-term loan that bridges the period of time between when you close on your new home and before your old home sells. It can last up to one year and uses your old home as collateral. You pay off the loan when you complete the sale of your current home.

Qualifying for a bridge loan is difficult. The lender often wants you to have an income high enough to pay for both mortgages and usually has a higher interest rate. However, a bridge loan is a great choice if you qualify and can afford the extra fees.

Are You Buying and Selling a Home? Consult With a Real Estate Attorney

First-time home buyers aren't the only people who find the process stressful. Existing homeowners can find it challenging to balance buying and selling homes simultaneously. Selling your current home before having to make the down payment on your new home is ideal, but life doesn't always go according to plan. Having to make two mortgage payments at the same may place you in a bad financial situation. FindLaw's Home Buying Guide may provide the information you need.

You should also consider consulting with a local real estate attorney, who can guide you through the process.