What You Need to Know About Buying and Selling a Home at the Same Time
People who are selling their homes are often looking to either expand or downsize into a new place. Many of them choose to buy a new home rather than rent. However, their ability to make the purchase of a new home is dependent on selling their current property.
Know Your Budget
Many homeowners can’t afford to carry two mortgages, which is why they must be able to sell their current home before buying a new house. There are several ways to accomplish your goals based on how much money you have in savings or your discretionary income.
First, figure out what kind of house you’re looking for and what is likely to be the monthly payments. While this is an estimate that can change based on the actual property you choose to purchase and the current interest rate, you can get a ballpark number.
Decide if you have enough money in savings to cover the extra mortgage and for how long. You can also look at your monthly income to see how much you have left over after bills are paid to assume a second mortgage for a while.
Know the Market
Learn the market for both the home you’re selling and the one you’re buying. You may discover it is a seller’s market, which means your home will sell fast but you’ll struggle to find a place to buy. On the other hand, you may find it easy to purchase a new home while your first home still sits on the market.
Once you understand the housing market better, you can work with a realtor to strategize. You may determine you feel more comfortable with selling your home first and renting until you find a place to buy.
You also want to talk to a lender. Purchasing a home may not be possible if the new mortgage payment puts you over the threshold for debt-to-income ratio. One the other hand, you may find you qualify for two mortgages if your current payment is low and your income has increased significantly.
Talk to your realtor about having an appraisal done before you put your home on the market. While you’ll have to pay for this expense out of pocket, it can help you know if your home should sell for close to the asking price or if you may need to do a lot of negotiating. This will be even more important if you’re counting on the sale of the first home to finance the down payment on the second property.
Consider Your Options
Basically, a homeowner has a few options when they want to sell and buy a home around the same time.
- Buy first and move out before selling – only works if you can qualify for the second mortgage with the first one included in your budget
- Sell first and move out before buying – you have to find a short-term rental or move in with family and end up moving twice
- Buy and sell at the same time – make your purchase contingent on being able to sell your current home to protect you
You may also have the option to close on your current home with the ability to rent it out for 60 – 90 days while you close on a new home. This option only works if the new buyers are willing to delay taking possession of the property. They benefit because you offer cash back or a lower selling price.
Buying or selling a home is a stressful time when you’re only dealing with one transaction. When you multiply it by two, you increase the level of stress and the likelihood that something will go wrong. To ensure everything goes according to plan, you must be prepared.
- Have more cash on hand than you think you’ll need.
- Be honest and upfront with your realtor and lender through the process.
- Stay informed through every step of the process by asking questions.
- Come up with a backup plan if one of the transactions stalls or falls through.
Don’t jump into any decision until you’ve thought it through carefully. Understand the various issues that could come up and make plans for how you will deal with each one. Failure to plan could cause both the sale and purchase transactions to fall through. On the other hand, working with a knowledgeable lender and realtor and being prepared can make this time in your life as painless as possible.