Most first-time home sellers don’t consider the complexities of the process of buying a new home… Until they need to do it.
The process of purchasing a new home while selling your current home can feel like a string of dominoes. And as dominoes work, when one domino falls, the rest tumble as well.
As Realtors, we’re here to walk you through the entire process and ensure that the pieces fall into place.
Here are the 3 options to buy and sell a home simultaneously:
Option #1: Contingency on the Sale of Your Home
Most contracts are written with contingencies. You will likely have a contingency to have inspections done and a financing contingency if you’re getting a loan. If you have a contingency to sell your home, you would put an offer in on a new home – but you would only be obligated to buy it if someone buys your current home. Essentially, if your buyer falls through, then you reserve the right to back out of the new home’s contract as well.
The obvious drawback to selling a home contingent is that it transfers all the risk to the home seller, and most home sellers don’t want to assume that risk on behalf of their buyer. This is especially true if you’re trying to sell a home in a really competitive market.
Option #2: Own Both Homes Temporarily
We have two options in this category. If you can afford to carry two mortgages, then purchasing a home before selling would be ideal. You would get a mortgage on the new home and our of your old home at your convenience.
The other option is a bridge loan. This situation isn’t for everyone and you must have equity in your home. Basically, a lender will use your current home as collateral when giving you a mortgage on your new home. Once you close on your new home, you will sell your old home and pay off a portion or the entire balance of the bridge loan.
A bridge loan isn’t offered by many lenders, however, we have a local bank with branches throughout Lake County that provide this loan type. If you would like more info, just reach out.
This process is helpful when your new home needs major renovations, but you don’t want to move in until the renovations are complete. It’s also helpful when you’re turning your old home into an investment property and you’re planning to rent it out after you move into your new home.
There are a few drawbacks. First, you’d need to be approved for a second mortgage, which is entirely up to the bank’s discretion. Second, you’d have to pay both mortgages simultaneously. Third, you can’t apply the funds from the sale of the first home towards the purchase of the second – which means you’d need to come up with the down payment out of pocket.
Option #3: Rent A Home
Most home sellers are unaware that they can stay in their current home after it sells by renting it back from their buyers. Yep, it’s called a rent-back deal. In this case, you would get all of the proceeds from the sale without having to move – which gives you both the time and money to purchase a new home.
Of course, the big drawback is that it transfers the risk to the buyer and most buyers are hesitant to take the risk of renting their new home and prolonging their own move in date.
Again, buying a home when you have a home to sell can be tricky business. I’ve seen transactions where 5 (or more) families are all buying and selling contingently, which creates a really long string of dominoes!
Orchestrating a transaction like that is an art form and you need a great real estate agent who can guide you through that process.
If you’re thinking about making a move (or know someone who is), I can help! Just reply back to this email or send me a text. No pressure, no sales tactics, just helpful advice and the guidance you need!
And finally, if you’re not thinking about making a move just yet, feel free to save this email for future reference, so you can come back to it!
Have a great week!