As a first-time home buyer, the process of purchasing a home may seem simple. You've got one goal in mind, and we are all focused on finding you the perfect first home. But what about when you are ready for a change, ready to move, and you need to sell your house and buy another at the same time? Suddenly things aren't so simple, and you've found yourself asking one of the most common questions, "Where do I start?" Never fear. We are here to help!
When it comes to buying and selling a house simultaneously, many families are ready for a change but don't know where to begin. Do you buy first? Or do you sell first? The answer to that question is dependent upon each person or family's unique situation and desires. So, we’ll look at three possible scenarios with the advantages and risks for each.
But before we consider options, it's important that you first talk to your lender. Schedule a quick 30-minute phone call to assess your financial situation and talk through the questions below:
How much do you qualify for?
How much of a mortgage can you realistically afford?
Do you need to sell your current house before your buy a new home? Or can you afford to own both properties at the same time?
Once you've talked to your lender, you'll be more prepared to consider the following options for purchasing and selling simultaneously.
Option #1: The "Perfect Timing" option.
In this option, the timing works out perfectly for selling your current house and purchasing your new one. You find your dream home, go under contract, then turn around and sell your current home a day or two before closing on the new house.
Pros: There are obvious advantages to this option in that you don't own two properties at once, you can use the equity gained in your first house to put into your new home, and you only have to move once. This is ideal for families who do not have separate savings to put towards a down payment on another house. Using the equity in your first home will significantly lower the mortgage on the new house.
Risks: The greatest risk in the "Perfect Timing" option comes with the possibility of something falling through or delaying the sale of your current house. This is where you will want to be very aware of the contingencies within the contract so that you know if you are able to back out if you need to. These are questions you can talk to your realtor or lender about. Later, we also provide some options to consider if the timing isn't so perfect after all.
Option #2: The "Dream Scenario" option.
In this option, you find your perfect dream home, purchase it, and then list your house to sell it. This option is especially ideal in a seller's market. When inventory is low and it may take you some time to find exactly what you are looking for, this option gives you the most margin to do so.
Pros: The "Dream Scenario" gives you as a buyer a ton of flexibility in terms of buying a house. If you are the type of buyer with a very specific property in mind (which may take a while to find), you have as much time as you need to find what you are looking for. This option also reduces any risk on the buying side, meaning if the closing is delayed or something falls through, you don't run the risk of being without a home because you haven't sold your house yet.
This scenario is also ideal for homeowners with young children. Listing and selling a home while still living in it when you have small children can be very stressful. If you've already purchased your new home, you can fully move out before putting your home on the market.
Lastly, this option is ideal if you need to do renovations on the new property. This way, you still have a place to live so that you don't have to live through renovations which can be very invasive.
Risks: The key to this option is affordability. Can you afford to own both properties simultaneously? This is crucial to determine beforehand because, in this option, you run the risk of owning both properties for an indefinite amount of time. Before moving forward with this option, you need to have a good agent with a good strategy and make sure the house you are listing is priced appropriately. Then talk to your agent about realistic expectations on how long it may take to sell your home.
Option #3: The "Most Common" option.
The most common scenario we see with second-time home buyers is when they can't afford to own two properties at once and must sell their current house before buying another home. Within this option, there are two ways we see this play out: 1) The seller takes their time to find the right home, and once they are under contract, they work to try to get their house sold as quickly as possible. 2) The seller lists their home and once they are under contract, they try to buy a property as quickly as they can.
The two biggest questions you need to answer if choosing this option are:
Is it more painful to buy your new house under pressure? Or;
Is it more painful to have to move twice?
Pros: The greatest advantage to this option is that you won't own two properties and be paying two mortgages at once. With this option, you are also able to use the equity you've built up in your current home to invest in your new property.
Risks: Depending on the current market, if you are very particular about the home you are looking for, you need to make sure you know where you're going before you sell unless you are ok with moving twice. If you don't have realistic expectations for homes in the area you are looking for within the budget you have, then you may be left without a home. It's always our recommendation to have a plan b in place just in case. Do you have a place to go if you are not able to quickly find a home to move into? Keep in mind that rentals are still very competitive in the DFW area, so you want to make sure you have a backup plan.
Additionally, you and your realtor need to be very in tune with your contract – what the outs are and what deadlines you have. That way, if you need to get off the train, you can.
As with any situation in life, things may not always go according to plan. If the timing doesn't quite work out as you and your realtor had planned, here are a few additional tools that could possibly help you out:
Bridge Loans: These are loans in which you pay temporarily to the loan in order to loan the equity out of your current house to put into the next house. These loans are interest-only (you only pay the interest) and they are usually short-term loans.
Recasting Your Loan: This is another way to put the equity from your current home into the new home shortly after closing. You would take out a larger loan when first closing on the home, but once you've sold your home, you could recast the loan, invest the equity from your previous house, and decrease the mortgage in a significant way.
Knock Home Swap: Knock Home Swap allows you to use the equity in your current house to purchase your new home before selling it.
One final consideration for all second-time home buyers. How much work does your current house need in order to sell it? Now, the amount of work it needs for you to live in it may be different than what it actually takes to sell it. When we work with sellers, we will give them our list of what we think would be worth fixing before listing the house. It's important to have that conversation early and to understand how long it would take, how much would it cost, and how invasive any updates would be.
There's no such thing as too early to start having these conversations if you're a current homeowner thinking about moving. If you're considering making a change, we'd love to help you sell your current home and find your next dream home.
Until next time,
Brianna and Keelie