Understanding how to buy a house while selling your own is no small task. After all, you need to prepare your home for prospective buyers and find the time to research the best listing price while timing it just right so that you can use the cash from the sale towards your new home. It’s not impossible – with some careful planning and a thorough understanding of your financial situation, you can buy and sell a home all at once without pulling your hair out.
Here are some questions you might want to consider when you’re figuring out how to buy a house before selling your current one.
Yes, you can. However, you’ll need to consider the financials before proceeding.
First, if you buy a new house when you haven’t sold yours, you’ll need some way to fund your down payment and any moving costs you have. There are products such as a bridge loan that allows you to take out a short-term loan specifically to bridge mortgages of two different houses together so that you can have some breathing room while you wait for your old home to sell. Keep in mind you may need to have significant equity to qualify and interest rates may be high.
Otherwise, consider negotiating the timeline when closing on the new home. You can extend the closing date so you have more time to sell your home. Other terms you can negotiate include a contingency clause – you’ll only buy the house contingent on selling yours. This could be harder to negotiate in a seller’s market, where there could be multiple bids on one property.
The answer depends on whether you absolutely need to move or you can hold out for a little bit longer. Life events like a divorce or job relocation opportunity can leave you no choice but to sell your home.
If none of these situations apply to you, then think about the cost when it comes to selling. Doing so too soon means you could lose money. Most experts recommend staying in a home for a minimum of 5 years to be able to recoup some of the costs associated with buying and selling a home – realtor, attorney and moving fees.
Of course, you can avoid some of these fees by selling the home yourself. You can enlist the services of websites like ForSaleByOwner.com to help market your home without needing the help of a licensed real estate agent.
When to sell your house also depends on how the local real estate market is faring. If the value of your home went up, it could mean you can turn a profit. But if you sell the home before you’ve owned it for you years, you could face paying capital gains tax – what you’ll pay based on the profit of the property. Besides, when you pay down a mortgage at the beginning, you’re paying mostly interest. Selling your home too soon means you may not have a lot of equity, so the money you paid could be for nothing.
Knowing your credit situation is crucial when buying and selling your home. It could mean the difference between getting a competitive rate or a high interest rate. And if you’re wondering if you can sell our house and buy a new one with bad credit, it’s not very likely.
Remember, you need to take out a new mortgage when you buy a new home and your credit history is a major factor as to whether lenders will grant you a loan. There’s also the question of the down payment – there are bridge loans as mentioned above, but those are costly. If you decide to forego one and try to come up with the cash on your own, you’ll need to figure out how to do so.
When crunching numbers, consider what your financial situation would look like in different scenarios – timing it so your old and new home closes on the same day, selling your home first before buying a new one and vice versa. Each scenario requires you have enough cash for things like moving costs and attorney fees.
Sometimes even the best-laid plans go astray – maybe there’s a delay in one of the closings, or your buyer’s financing falls through. Having contingencies in your purchase agreements can help without too much financial sacrifice.
It’s a good idea to come up with a few backup plans in case this happens. Options include finding a short-term rental and storage unit until you find a new home (or close on an existing deal) or asking buyers to do a rent-back agreement. This lets you stay in your current house for a predetermined amount of time until you move into a new place.
Whichever situation you face, buying and selling a home at the time can be challenging. Keeping a close eye on your budget, thoroughly researching the real estate market and what you can negotiate in each case will help make the process smoother.
