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Remember when you bought your first home and didn't have to worry about holding another mortgage at the same time? Plain and simple right? Things get more complicated when you're looking to graduate to a repeat buyer. Unless you have the funds available, and let's face it, for most of us, that's not the case, then you will need to sell your current home in order to buy a new one. This adds a different layer of concern to an already stressful process.
In a perfect world, you would buy a new home, move in, and then worry about selling your old home. For most people, this is just not realistic. It can be incredibly costly to hold two mortgages, and the seller of your potential new home might look at you differently if they know you're in this financial position. Some buyers experience difficulty with getting sellers to take their offer seriously if their home is not on the market or already under contract.
It may sound like a nightmare to shop for a new home while selling your current home, but it may be your best option. Here is some helpful info that can make the process go smoother.
Know the market first
First things first, before you start the search for a new home, or list your current home for sale, you need to understand the housing market. This includes the area where you plan to buy, if different from the neighborhood you're selling in. Consult your Realtor to see if it's currently a buyer's or seller's market. Once you know, you will be able to plan accordingly. Understanding where your leverage is puts you in the best position.
Openness to various buying options is one way to play it safe. If the market is leaning towards the seller's side, then you'll most likely have few issues getting your home sold quickly, but may struggle to find something to buy. If you're able to broaden your search and find multiple homes that you may be interested in, then you should have backup options in case your primary choice falls through. You may also want to consider hiring an appraiser to ensure you price your home right. Talk to your Realtor about getting this arranged.
If it's a buyers market, then the home you're selling will most likely have competition. You will want to competitively price your home to attract as many buyers as possible. This is not the time to be stubborn about waiting to lower the asking price. Sitting on the market will delay your ability to purchase something new, or if you're simultaneously holding two mortgages, then that extra time on market will feel like an eternity.
Plan your schedule carefully...
Most likely, your first question you'll have is whether it makes sense to buy first and then sell, or vice versa? Both come with advantages and disadvantages.
If you sell first, then obtaining a mortgage will be much easier, but you'll need to find an alternative housing solution.
If you buy first, then you don't have to worry about finding temporary living arrangements, but it will also greatly affect your debt-to-income ratio, and will make getting a mortgage much more difficult as it'll have to account for two monthly payments. It may be difficult to have the funds necessary for your down payment, as well, if a chunk of your money is attached to your old home. It's a balancing act that requires lots of planning.
... but don't rely on timing
Remember: there are more parties involved than just you. For every seller there's a buyer, for every buyer there's a seller.
You might have everything perfectly planned in advance, but that doesn't account for the variables of the people you are working with. Closings can often encounter delays. The buyers might have trouble obtaining their loan. The inspection may bring up issues that need to be addressed...so on and so forth.
So even if you've planned ahead, that doesn't mean things will go perfectly, and there's always the chance of derailed plans. However, preparing yourself in advance will almost always produce the best outcome.
Know your financial solutions
If you choose to sell before buying, then the process is pretty simple. You just need to factor in the cost of a rental between homes. Another option that you might want to consider is a lease-back agreement. You would need to negotiate with the buyer to be able to remain in your old home for a period of time. Typically anywhere from 30-90 days. This is often in exchange for a reduction in the sale price or rent paid to the new buyer. This will give you more time to find a new home thus relieving some of the pressure and stress.
If you plan to buy first, then discuss with your realtor on how to limit financial risk. Two of the better known options are:
Contract contingency: When submitting an offer on a new purchase, buyers can make it dependent on the sale of their previous home. If it's a sellers market, this may not be the best option as there will likely be other buyers interested in the property. However, if there has not been much interest in the home you are making an offer on, then this may be a good option and work in your favor.
Bridge loan: Don't have enough funds to carry two mortgages at once? A bridge loan may be an option. It's essentially a short-term loan, that is repaid upon the sale of your previous home. This can work especially well for people who plan to sell their home and need the proceeds of that sale to close on their new home.
Don't let fear rush you
If you sell your home but have yet to find a new one, then don't rush to buy something that may end up as a bad decision. Many Realtors advise their clients to plan on a short term rental so they don't feel rushed to purchase something that they're not totally sold on. You should never buy a home because you feel pressured by time constraints.
On the other hand, you should never accept an offer that you feel is too low because you don't want to have to pay two mortgages. If you have a short term living arrangement in place, then you are less likely to make a bad decision.
Selling and buying at the same time will almost always be a stressful situation, but if you carefully and strategically plan ahead, then the stress levels should be lessened.
