This is the final post in my 5-part series: How to Buy & Sell a Home with Ease.
This last article is for homeowners who are approved to buy their next home first and then sell their current home. This means your lender can approve you to buy without requiring you to sell your current home first. Here are the steps to how you can make it happen:
- Talk with a Lender
It’s key to talk with a lender before starting the home buying search in order to make sure you qualify to purchase a home without having to sell first. And for you to fully understand what approach works best for your circumstances. You don’t want to find your dream home only to learn you have to sell in order to buy. And that could cause you to lose out on the home of your dreams.
The lender will review your debt to income ratio to see if your ratio falls below the standard guideline of 45%. Most loan programs have a threshold of no more debt than 45% of your income. Your debt will include all the costs for the new home, your current home mortgage, car loans, student loans, etc. If your debt is higher than 45% you most likely won’t qualify to purchase the next home first. If this is the case, then you will need to sell your current home first in order to be approved for financing.
Keep in mind that you won’t know exactly how much your current home will sell for until you put it on the market and get an offer. However, I will help provide you with a guideline on the price it could sell for. But, since you plan to buy a new home first, you really won’t know the exact equity you’ll get until you actually sell it.
2. Review your Options:
There are several different ways to get cash out of your current home or other investments you need a down payment to buy the new home. Just because you need cash out of your home, doesn’t mean you HAVE to sell it first.
That why I can’t stress enough to my clients to think of the long game when it comes to handling finances. It makes decisions about what to do with your money much easier if you already have a long-term strategy in place.
Remember these are all options to consider, but some may be better for you than others.
- Borrow from your current home: As long as your lender can still approve you, consider a home equity line of credit (HELOC) or get a cash-out refinance to get the cash you need out of your current home and still live there.
However, lenders do not look favorably on this. It may mean doing this one year and then moving forward with your purchase of a new home the following year.
This very reason is why I tell clients not to necessarily have an aggressive approach for paying down their current mortgage loan—you can’t get that money out again. So, if ever you have extra money and your plan is to eventually move up to a bigger home, then don’t put that money into paying off your mortgage, instead save that money for your next down payment.
- Borrow from yourself: Talk to your financial advisor and look into the savings you have that you might be able to borrow from vs selling any stocks. You might consider borrowing from your 401K. Using this option takes time to get the funds, so it’s something to explore and have the details in hand before you start your home search. It’s a great way to create your very own “bridge loan” by borrowing from yourself.
- Bridge Loans: Bridge loans are temporary loans, secured by your existing home, that bridge the gap between the sales price of a new home and your new loan. It’s giving you the “bridge” to cover the costs for your new loan which is then paid off when you sell your current home. There are costs involved with a bridge loan so it’s best to weigh this option with your lender to see if it’s the best fit for you. But given that it can help you buy before having to sell it might be an option to consider.
3. Decide Which Strategy is best for YOU:
Your lender and financial planner are your best guides for advising you on which is your best option. If you need a referral to a lender who understands these types of transactions and can determine what is financially possible for you please let me know. I’m happy to provide you with a list of lenders who are experts in this area.
Now is the time to find this out from your lender! Maybe you may want to buy first so you can take your time and find “the one.” Only your lender can tell you whether it’s possible.
As you can see, this part of the process takes a bit of planning and that is why I tell clients to reach out to me WELL before they need to move. By working with me as early as possible, you can put together a plan to buy first the “right” way and avoid unnecessary stress and costs.
4. Make a Plan
Once you have your financing in place and you know where your down payment money is coming from, you can start to look at homes in your price range and in your preferred neighborhoods.
Remember, your price range should have been provided by your lender after you told them what you are comfortable paying per month on your new home as well as what you have for a down payment.
A.) Finding your new home first
One of the benefits of buying your new home first is that there’s no pressure to rush to find a home. You can take your time and find your forever home or your move-up dream home.
The clock really doesn’t start ticking until you actually buy (or put an offer) on that new home. And then you’ll have two mortgages!
And once you own it, you’ll have the time before moving to renovate or prep your new home for your family. It’s the perfect time to paint rooms before all of your stuff moves in.
Once you’re moved out I can provide the staging of your vacant home for free to help it sell in top showing condition and save you money! You don’t have to worry about keeping your home in showing condition or deal with the showing requests when you buy first and sell second.
B.) How to time everything to make sure you don’t own two homes for too long.
One of the disadvantages of buying first is that you will own two homes at once and could have double mortgage payments for a while. This cost will all depend on how soon you will sell and close on your current home.
It’s preferable to have a firm plan in place so that you don’t waste any time between homes and can close on both of them within a short time as possible.
That’s why you should also understand the flow of the market, especially if it’s during the lull over the winter holidays; in early or late summer to time a move with school schedules; or at the chaotic peak of the spring selling season. You don’t want your current home on the market at a time when you can’t get the most for it!
We can start talking a year from when you want to move or sooner as more time is better to develop create a plan to take into account all of your specific factors.
C.) Focus on selling your current home at the same time (just don’t put it on the market yet).
Now that you’ve got your plan and timing figured out, you should start preparing your current home for sale so when you do find that next home, you can quickly put your current home on the market. You don’t want to waste time preparing your home at that point; it should already be done and ready to list. I can come by and we can come up with a list of the top things to do to prepare your home for sale.
D.) That means to price it well and fairly. It’s not time to think too high and then get zero offers, causing your home to sit on the market longer than you would like.
Your goal is to start living in your new home (unless you’re considering turning your current home into a rental property). Every month is another mortgage payment on your former home as long as you own it. Factor that into your budgeting and sales price.
However, I don’t mean you should shortchange yourself or look desperate to sell. That’s why the marketing and timing of your sale will play a big part in how you price it.
This concludes our five-part series, How to Buy and Sell as Home with Ease — a how-to guide on buying and selling at the same time. I hope you’ve learned that you need to:
—Plan well in advance before you need to move.
—Rely on your experts— Your agent (me!), lender, and financial planner need to be involved from the very beginning so you know what works best for you.
Remember, every homeowner’s situation is different and the plan to buy and sell and what’s possible depends on your financial situation and your goals.
Contact me to schedule a time for us to talk about things in more detail. We can determine what’s possible for you so you can get from where you are to where you want to be. I can’t wait to hear from you and help make your experience of buying and selling at the same time as easy and as profitable for you as possible!
I'm Nancy and I love helping homeowners who have outgrown their current home and are ready to buy a new home but don’t know where to start. Let me know how I can help you make your real estate dreams come true.
4040 Fairfax Dr. #10C
Arlington, VA 22203
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