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Step 1: Understand Advantage and Disadvantages
Home sale transactions are complex, and being both a buyer and seller at the same time can be overwhelming. Before proceeding, it's essential to understand the process thoroughly to maximize benefits and reduce risks.
Pros of buying before selling
No rush: Buying before selling allows you to house hunt at your own pace, without pressure, which can help you find the best option.
Move once, on your terms: Avoid the hassle of moving twice by transitioning directly into your new space, saving you from living out of boxes and double moving fees.
Avoid temporary housing: Buying before selling avoids the stress and cost of short-term housing, such as renting or staying with family.
Cons of buying before selling
Complex financing: Managing two mortgages or securing bridge financing requires strong financial stability and meticulous planning.
Harder to secure financing: Without proceeds from your current home sale, qualifying for a new mortgage can be harder, especially with a high debt-to-income ratio.
Risk of home values fluctuating: If the market shifts after you buy, your current home might sell for less, causing financial gaps or unexpected costs.
Step 2: See available financing alternatives
Unless buying with cash, securing financing can be complicated because your budget often relies on the proceeds from your home sale.
Home sale contingency
A home sale contingency makes your offer to buy a new house dependent on selling your current home first. If your home doesn't sell by a specific date or price, you can withdraw your offer without penalty. This reduces risk but can make your offer less appealing to sellers, particularly in competitive markets.
Home equity loan
A home equity loan lets you borrow against your current home's equity for a down payment on your next home. It's cost-effective if you have enough equity and can manage multiple financial obligations. However, a high debt-to-income ratio can limit borrowing power and reduce your homebuying budget.
Step 3: Plot a schedule
After selecting a financing strategy, outline the necessary steps to ensure a seamless transition from your current home to the next. Proper timing is crucial to prevent financial stress and logistical challenges.
Obtain mortgage preapproval
Secure mortgage preapproval before beginning your house hunt. This provides a clear budget and strengthens your offers.
Collaborate with an agent experienced in handling both buying and selling transactions
An experienced real estate agent can help coordinate both buying and selling, negotiate contingencies, and manage deadlines, even if they're not handling both transactions directly.
List your home as soon as possible
To avoid carrying two mortgages, put your current home on the market as soon as possible.
Buy a house and move
Once your offer is accepted, plan your move by considering these provisions:
Rent-back agreement: Stay in your current home temporarily by renting it back from the buyer.
Extended closing period: Negotiate a longer closing timeline for your new home. List your current home quickly to avoid carrying two mortgages simultaneously.
Close
Collaborate closely with your lender, agent, and title company to ensure both transactions are synchronized. Prepare a backup plan for temporary housing or short-term financing to handle any unexpected delays.
Source: realtor.com
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