Buying and Selling a House at the Same Time
Avoid overlapping mortgages the next time you buy a house
So, you've decided to move into a new home. Like many people, you may be asking yourself if it is best to sell your old home first then buy your new home, or vice versa. If you sell first, you create a time crunch for yourself and may end up choosing a new house that's not quite what you wanted or paying more than you had intended. If you buy first, then you face the trouble of paying two mortgages while trying to sell your old home. Follow the tips below to help you through these tricky ins-and-outs of buying and selling a house.
Explore the housing market
Before you do anything, you need to get a feel for the housing market. Look around both your current area and the area in which you're looking to buy to see what comparable homes are selling for. This will help you calculate how best to sell high and buy low. Also, figure out if the current market is a buyer's market or seller's market. That way you can make the best of whatever situation you find yourself in.
- Buyer's market: A buyer's market exists when the market is cold. In this situation, your better position is as the buyer. You have a plethora of houses to choose from at great prices. The downside is that your old home might be harder to sell. A solution to this is making your buyer's contract of your new home dependent upon your selling your old home. A seller who is having trouble in a cold market will usually be willing to wait for you to sell your home.
- Seller's market: A seller's market exists when the market is hot. In this situation, your better position is as the seller, and selling your home will be easy. In order to protect yourself from selling before you find a new home, negotiate with the buyer of your old home to have the contract state that the closing is dependent upon your closing of a new home. Because buyers are in a hard position, they will usually be willing to wait for you, if they are guaranteed a sale. Some buyers may only agree to an open-ended period. Other buyers will agree to wait for a specified number of days. Either way will still buy you time to find your new home.
Owning two houses at once: bridge financing
Timing this transition can be tricky. If you are unable to time it perfectly, and end up not owning a home for a short amount of time, you will have plenty of money in the bank, and only need to find a temporary living situation. On the other hand, you may own two houses at once, in which case your housing expenses will be twofold. Follow these tips to help you through the potentially expensive transition between buying and selling a house.
- Borrow the down payment on the new home from a private person—like a relative or friend: Emphasize that this is a short durational loan and offer them an attractive interest rate. Give them a promissory note, with the mortgage of your new home as collateral. Arrange the loan so that you will owe nothing until after your first home closes and you collect.
- Take out a bridge loan: Home equity loans, often used to pay the down payment of new homes, are unavailable to you if your old home is still on the market. Instead, a bridge loan is used in the event your old home has not yet sold. It is a temporary loan that bridges the gap between the sales price of your new home and your new mortgage. You are basically getting a small, short-term loan backed by your old house, using it for the down payment and closing costs of your new house, and repaying the loan when your old house sells. Qualifying for a bridge loan can be pretty tough, though, and bridge loans are typically expensive. Most lenders require your income to be high enough to pay for both mortgages indefinitely. If you qualify and you can afford the extra fees, however, a bridge loan is a great help in the transition between buying and selling a house.