Throughout owning a home, you may find your family’s needs expanding outside of what your current home provides. At that point, you could be looking at ways to transition to a home that better suits your family. With kids, school, sports, and other afterschool activities to juggle already, you’re going to want to make the moving process as straightforward and simple as possible.
But, how do you buy a house while selling your own? There are two main approaches:
- Buying a new home first, or
- Selling your home first.
We’ve laid out how people do each, along with some potential benefits and difficulties here.
Buy First, Then Sell
If the real estate in your area sells quickly, it may work out that you can buy a home before you’ve sold your own. This can be risky, though. If you can’t find a buyer for your own home, you may end up owning two homes at once. The mortgage payments that come along with this are not cheap and can put you in a difficult financial position.
However, there are some ways to mitigate the risk associated with buying a home first.
Sales contingencies are a particular agreement you use when you buy a home. They give you the option to back out of the purchase if your home has not sold in a particular period (usually 1-2 months). This gives you the buffer period you need to sell your house.
If your home sells in time, then you move forward purchasing the house as planned. If you do not, then the contract would be void and you will have to begin the search for a home again. In addition, sometimes, if the sellers find a new buyer, you may have a limited time to commit to purchasing the home before the house goes to the new buyer.
Use your home equity to buy
One way to leverage your current home to purchase a new one is by using the equity in your home as collateral for your new mortgage. This helps you afford the new down payment and mortgage while you are waiting for your home to sell.
Get a bridge loan
If you don’t want to leverage your home equity to purchase a new home, then getting a bridge loan might be better for you.
A bridge loan is usually a high APR loan that you use to pay for the down payment on your new home. Because the loan is high APR, though, you’ll want to reduce the time before you pay it off (by selling your home) as much as possible. If the market for selling homes is not great, you could end up in a position where you have a high APR loan and a mortgage payment, while trying to sell off your current home.
Sell First, Then Buy
If you want to avoid a situation where you end up with two mortgages, you may opt to try and sell your current home before buying. If there’s not much on the market in your area, you might end up in a spot where you’ll need to move into an apartment, store your belongings, or find some other transitionary alternative. This can be especially difficult to juggle with young kids, as moving itself is not a simple process!
If the market is good for selling and buying homes, then this may be less risky. But even still, there are ways to make selling first a smoother transition.
Opt for a longer closing process
As a seller, you can negotiate with your buyers about the closing period on your home. By stretching out the closing process from 60 days to two or three months, you gain time to shop for a new home. This is often a feasible alternative for buyers who have yet to sell their current homes. In this case, it can be a win-win. This also gives you more time to pack and move – which is ideal for a busy family!
Consider a rent-back clause
A rent-back clause is a specific clause in the sales agreement that states that if you are unable to find a new home, you can rent your home from the buyer at a particular rate. This saves you the hassle of having to move twice and find a temporary place for the interim. It can be difficult to negotiate this with buyers who have already sold their home, so be sure to address it upfront.
How To Decide What Process Is Best For You
Partnering with a real estate agent is a good way to understand your options and make the right decision. It’s also a good idea to talk to your local financial institution and understand what loan options are available for you.
In this case, you will want to know about your home equity, and how you can use it to your advantage. You can check out our blog post on this topic below!