Many people are torn with the idea of buying a new home and selling their current home at the same time. The process can be challenging and stressful at times but can also be a nice experience if you have the understanding of what the process involves.
The following hints may offer some insight as to some of the hurdles that you may be forced to cross when buying and selling at the same time.
The first step in the process is to get pre-qualified and to identify how you want your financing to transpire. You have basically three options:
1) List your current property. When it goes into escrow, you can start looking. You have really no chance at getting an offer accepted if you have to sell your home and close it before you can purchase the new home. Most of the time you can get an offer accepted in today’s market once your current house is in escrow. It is next to impossible to get an offer accepted if you also have to sell (find a buyer ) for your home. Contingencies usually cause you to lose most of your buying power due to the inconvenience of the seller having to deal with the closing of your current home as well as their own home. Most transactions rarely close on time and you are forced to coordinate both closing dates simultaneously. It is difficult for the title companies and/or the lenders to make this happen for you due to the amount of details and the amount of people working on your transaction. One way around this potential problem is to set up a leaseback agreement in order to build in flexibility. When your current house closes, you can rent back from your new buyer until the new house closes. One potential downside to this approach is the fact that you may feel uncomfortable about selling your current home when you have not picked out the new home yet.
2) List and sell your current property and move into a short-term rental until you find the right home. The only downside to this is finding a landlord willing to rent to you short-term, and you have to move twice. A positive note is that you were able to take your time selling your current house, therefore getting the most in your pocket. You also do not have to rush and buy a home that you are not entirely happy with. Most of all, this approach will save you from loads of stress. We STRONGLY recommend this approach and are more than happy to help you find a short-term rental.
3) Get qualified for both homes and “go with the flow”. List you house immediately and hold out for a good price. In the meantime, you can house-shop and write an offer with the ability to negotiate since there are no contingencies involved. Knowing that you probably cannot coordinate both houses closing at the same time, you do not need to worry about scheduling. (If you think you can make both houses close together, you will end up misrepresenting the facts of the purchase contract and the transaction will end up being contingent even though the contract on the purchase was not written that way). One thing to remember is that your loan should be structured accordingly. In order to save on Private Mortgage Insurance, you should set up an 80/20 loan or something close. This way, when your current house closes, you can pay off one of the mortgages. This loan will be slightly more expensive because you have two sets of loan costs, but should save you money as you now have negotiating power on your purchase and you do not have to rush the sale of your current home. A downside to this approach is that you may be forced to make double payments in the event that your house does not sell quickly. Again, this approach will save you loads of stress. We STRONGLY recommend this option.
4) One other option is to obtain a loan in order to make the down payment on you new home. Many times, these bridge loans require no monthly payments. This allows you to obtain only one loan for your new purchase; saving any additional closing cost, from obtaining the 80/20 type of financing. This is another option that we STRONGLY recommend.
Moreover, it is almost always a terrible mistake to house-shop first and then get qualified. Lots of emotion takes place in the home shopping process. For example, if you have fallen in love with a home listed for $450,000, you have a tendency to do whatever it takes to buy the house. Your payment may be $2500/month which is $500 more than what your budget allows. If you would have taken the time to speak to a lender first, they would have told you that $325,000 is your top price. Then, you and your Realtor could have looked at homes in that price range, and not even bothered with the higher priced ones. What you don’t see, will not hurt you!
