Most people expect that buying your first home will be a stressful experience. Between competing bids and arranging a mortgage to finance your new property, there’s plenty to be nervous about. What fewer people realize is that buying your second home doesn’t necessarily become less stressful just because you’ve done it once before.
Instead, it brings anxiety from a different angle. Now you not only need to go through the process of buying the new home; you also need to worry about selling your own home in order to make all the finances work out. How long can you afford to wait before the home goes to another seller? How long will it take to sell your own home if you put down an offer? Buying and selling at the same time is a bit of a high-wire balancing act.
It can be frazzling, for sure. But, just like with first-time homebuyers, you can plan a strategy to make the whole experience less stressful. Follow these steps and make the move from property as smoothly as possible.
I. KNOW THE NEIGHBORHOODS
There are many reasons to research the neighborhoods where you plan on moving, but few are as important as understanding how it applies to your needs as a simultaneous buyer/seller.
You need to contemplate how the real estate markets—both where your current home is located and where you plan to resettle—are working. Some markets are competitive, with homes moving quickly. This could be because of neighborhood trendiness, or a symptom of the city’s real estate demands as a whole. Others are much slower. The combination of trends between your current and future markets makes all the difference.
For example, the ideal situation would be your current neighborhood being competitive and the one where you aim to relocate is slow. This suggests that you can sell your home quickly and take your time bidding on the new property. On the other hand, if you’re moving from slow to fast, your hands may be tied. You certainly won’t have as much flexibility in the latter situation.
It’s a good idea to have multiple homes in your sights so that you can pursue different options based on your current selling situation. Falling in love with one home may leave you high and dry if all the pieces don’t fall into place (and they often don’t).
II. GET PRE-APPROVED
Many assume that they’ll pay for a new home by selling their previous home…until things don’t work out that way. Speaking with your lender and getting pre-approved can help you understand where you stand financially when debating whether to buy or sell first.
For example, do you have equity in your current home? Will you be able to use that toward the purchase of a new home? How much will you need for a down payment for the kind of property you’re looking for? These are all important considerations before looking for homes, but perhaps the most important question is whether the lender will allow you to go forward with a purchase before your last home sells.
III. BUY OR SELL FIRST?
After researching target neighborhoods and getting pre-approved, you must decide whether you should aim to buy or sell first. As stated above, this decision will often depend on whether you can even acquire financing without selling your previous home first. And, even if you can get financing without selling, will you be able to afford payments on multiple mortgages? On the other side of the coin, you’ll need to find someplace to live in the meantime if you sell first. Here are some options that could help you out in both situations:
i. Sell First
If you’re selling first, you can try to talk your buyer into a rent-back clause. These allow the seller to continue living in the home, usually for a period of 60 to 90 days, which gives them more time to find a new residence. Understand that you’ll be paying for the privilege, if the buyer agrees. Your payment will either come in the form of rent installments (your home essentially becomes a glorified apartment) or you can simply drop the asking price for the home upfront. This may be more convenient than searching for temporary housing, if you can swing it.
ii. Buy First
There are multiple options for those looking to buy first. One is to try to sell the seller of your new home on a contingency plan, which essentially states that your purchase can only move forward if your own home sells. This is great for you…but don’t expect it to happen. The housing market is generally competitive at the moment and few sellers will need to wait when they have other potential buyers clawing at the door. Still, if your theoretical future home has been on the market for a while, the sellers may be willing to wait, especially if your bid comes in near their asking price.
Another option is acquiring a bridge loan, to carry you from one home to the next. This can be handled in two ways. One is to use the loan to pay off what you currently owe on the home you’re selling, to be paid off when you sell that home. The second is to take a second mortgage in order to pay the down payment on your new home. Either way, understand that the interest rates on these loans tend to be higher than typical mortgages, so make sure you can afford the payments.
Buying and selling at the same time can be a challenge. Just like buying your first home, however, a well-planned strategy can go a long way toward making it simpler.