Buying a Home When You Have One to Sell
Buying a home when you have one to sell can be a trying experience, but with a little advance planning it can be accomplished without too much difficulty. The first step is to examine the three basic ways to accomplish it and to weigh the pros and cons of each approach to determine which is best for your situation.
Sell First Before You Buy Most people have much of their life savings tied up in the equity of their present home, so making the move to another house usually involves selling the old one first. I have worked with buyers who have sold their present home and rented a house or apartment until they could find and complete the purchase of the new one. The double move is inconvenient and can be expensive, but it allows plenty of time to look for the next house and can give you some negotiating clout since the equity from your former home is in the bank. There are other drawbacks, however. Interest rates may rise or it may become a seller's market causing prices to increase.
A somewhat safer version of this approach is to find several houses that you would consider purchasing before putting your house on the market and to continue looking for others during the marketing of your home. When an offer comes in on your home, negotiate with the buyer for as long a closing time as possible, perhaps even including a one month rentback option. This will allow you extra time to locate other houses and to complete the sale on your new home.
Buy Contingent on the Sale of Your Present Home A more common approach is to make a purchase offer contingent on the sale of the present home. With a contingent offer you are only obligated to purchase the new home if your old home sells. Since the seller has no assurance that the sale will go through, the seller retains the right to continue marketing the home for sale. If another offer comes in that is acceptable to the seller, you will be notified that you have 5 days in which to either accept an offer on your home or agree to purchase non-contingent, waiving your financing contingency as well. Not many buyers are in a position to do that! Although contingencies offer the highest degree of safety, it can often consume a large amount of a buyer's time and emotional energy, only to lose the home to a non-contingent buyer.
Use a Bridge Loan If you have a considerable amount of equity in your present home and have a substantial income, you may qualify for a bridge loan. Bridge loans allow you to borrow your down payment against your existing house so that you can make an offer on the next home non-contingent. Buyers using this approach should be prepared to make payments on both their old house and new house mortgages, and understand that interest will be accruing on their bridge loan. To keep this situation to a minimum, I council my clients to negotiate a lengthy closing on the home they are buying and to price their present home so that it will sell quickly.
If you have any questions on how to buy a home when you have one to sell, give me a call.