Steps to Buying AND Selling In One Move
A common questions we get: How do we handle the timing of buying AND selling when we have to do both?
First, understand that there are options, and they depend on a few factors:
- Your finances
- Your needs or desires
- Your desired timing
- Your risk tolerance
- The current market conditions
The role your finances play
Let’s look at finances first, because that alone can dictate and/or override everything else on the list.
Depending on your income, assets, equity in your current home, outstanding debt, and credit score, you might qualify to get a loan to purchase the new home before selling the old one. This can take several different shapes.
The “easy button” is that perhaps you have cash set aside and/or significant-enough income to qualify to carry two mortgages, until we get your old house sold.
Second to that is if you have substantial equity in your current home that you can borrow against, in the form of a HELOC (home equity line of credit). We’ve had a LOT of clients take this route. How it works is this:
- Before you list your current home, you apply for a HELOC (we’ll recommend a lender if you need it).
- An appraisal takes place and you can borrow up to 85% or 90% of the total equity to use as a down payment (or full purchase price?) of the new house.
- HELOCs are very inexpensive to open, not at all like a full purchase mortgage.
- And you don’t access that money or start paying interest on it until you close on the new home purchase.
- Once you get moved into the new house, we prep, list and sell the old house.
- At the time of closing the sale on the old house, escrow pays off the HELOC, and you stop paying for it. Boom, done!
An alternative to the HELOC is a “Bridge Loan” which basically accomplishes the same thing -- it’s gap financing. Different lenders have different bridge loan programs, limits on what they’ll lend, no-payment options and other variables.
If you have neither equity in your current home, nor the incomes/assets/credit to qualify for a HELOC or bridge loan, then buying before you sell probably isn’t an option. In that case, we’ll discuss writing a “contingent offer.”
A contingent offer is a formal offer you would make on the house you want to buy, with an addendum in the offer that essentially says, “This sale will only take place if we are able to sell our current house.”
If it’s accepted by the seller, your timelines for the inspection and other contingencies begin right away. You also then have to bring your house on the market within 5 days, and it must be pending within 45 days -- unless those times are otherwise negotiated.
*Because of the 5 day window to come on the market once your contingent offer is accepted, we want to bring your house right up to the brink of “ready to list” before we go making contingent offers on anything. As listing agents receiving contingent offers, we’ve encouraged our clients to turn them down flat if the contingent property (the one the buyer has to sell) is light-years from being ready for the market and/or their price is ridiculous at best.)
Contingent offers are great for you, the buyer, if you can get the seller on the other end to accept it. To be clear, it IS somewhat of a risk for the seller on the other end.
Why? Because the status of their listing changes on the MLS from “Active” to “Contingent” and make no mistake: That stigmatizes the listing. It affects it, it scares away some potential buyers, and it typically leads to decreased showings.
Understand that contingent offers are not always easy to get accepted. Some sellers won’t look at them at all. Some listing agents, when reviewing a contingent offer, will discuss some stipulations such as:
- Full in-person review of the house you’re selling;
- Written disclosure of where you’ll be pricing it;
- A written marketing plan;
- A scheduled series of price reductions if it’s not selling;
- Maybe more.
But if contingent is what you’re comfortable with, and you understand we may have to go after a few houses before we get one under contract, then we’re prepared to do it!
Sell then rent (or stay with family or friends?):
Another option is to sell your current house first, and either negotiate to rent it back while you shop for the new home, or move in with family temporarily, or rent something else. Yes, moving multiple times is a burden. But this puts you in a tremendously powerful position of being “ready, willing, and ABLE” to buy without being contingent.
The Bottom Line
There are a range of options, and the best route to takes depends on you knowing all of those options so you can make the best decision for you. Reach out, and we’ll get started.