How to Buy and Sell a House at the Same Time
I know this market can be crazy intimidating and without the right plan extremely stressful. The reality of life is most of the time we need to sell our current home in order to buy another one…But, right now houses are flying off the shelves and no one wants to end up homeless. So, I wanted to take the time and break down how you can smoothly buy and sell at the same time.
In this blog post we will go over ways in which you can prepare to buy and sell at the same time and also look at other options. You may be able to Buy First! Either way this article will help you in creating a stress free (or almost free) plan.
So, Let’s Dive In!
Can you Buy First?
I know what your thinking… NO, I need the money from my current home’s sale to pay for the down payment of my next property. Well, I am happy to inform you that you may not need to at least not yet. Here are some of the top options for getting the money for the down payment on your next home BEFORE you sell.
HELOC or a Home Equity Line of Credit - A HELOC is like a credit card from your current home’s equity and depending on your financial situation and lender it can go up to 90% of your current equity. What is equity? Your home’s equity is the difference between how much your home is currently worth and how much is left on your mortgage. For example if your home is worth 300,000 and you have 150,000 left on your mortgage… you have 150,000 in equity! But, if you plan on going this route make sure you get the HELOC setup before trying to sell your current property as most lenders won’t open a HELOC on a property for sale.
A Bridge Loan - This allows you to utilize your home’s current equity to get a short term loan. Bridge loans are normally for 6 months or under a year. These loans are used to “bridge” the gap between you buying a house and you selling your current one. You make interest-only payments on the loan, and the maximum term is typically a year. You can also defer the new mortgage until you sell (you will have to pay the payments eventually just not right then). You also must have (in total between the two homes) at least 20% in equity.
401(k) or other Investment Account Loan - You can actually borrow money out of these accounts. When borrowing out of a 401(k) keep in mind you can borrow up to half of the current value or 50,000. Not to mention the HUGE up side which is that lenders will NOT count this money as debt when pre-approving you to buy your next home! Not to mention the interest rates are very nice. But, you will want to pay this money back once your current home sells. Why? Well, it could have serious tax penalties if you default on paying it back.
Low-Down-Payment Mortgage then Recasting your Mortgage - So, this is a fun one… Basically you just apply to get your next home through a low down-payment conventional program (maybe 5% down now when you wanted to do 20%). Then once your old home sells you put the funds into your new mortgage and get it “recast.” So, what does that mean? Well, it is when your lender will apply the new lump-sum of money to the current loan principle (the amount you borrowed and have to pay back) and then redoes the amortization schedule (your interest and principle amounts you pay over time). This will lower your monthly payments with out refinancing your mortgage. But, this can only be done with conventional loans (NO FHA, VA, or USDA).
Talk to your local lender about which option would work the best for you and your family!
How to Buy First Smoothly
Now that you know you may actually be able to buy first before you sell let’s dive into how you can achieve this as smoothly as possible. Knowing you will need to sell your current home regardless of which road you take make sure you are getting that house ready to sell once you find a place. Follow these tips and you’ll be all set!
Get a local lender who can help you in determining the best financial road to take.
Get a (cool) local realtor to help you in getting your home ready and also in finding your next home.
Start a plan calendar! Timing is everything when doing this… So, make sure you have a planned out calendar with your realtor and lender.
Get your home ready to sell… Check out my seller’s tab on my education page and my blog on how to improve home value before you sell.
Find your next home!
Follow the under contract rules and calendar your lender and realtor make with you.
List your current home for sale (I recommend to sell it contingent on your new house closing).
How to Sell and Buy at the Same Time (if you have to)
Whether you can’t use the alternative roads to buying first or maybe you just don’t want to take out any money…This section is going to show you exactly how to buy and sell at the same time!
Get pre-approved based off selling your current house (this will let you know what price range to look for).
Get with a local realtor who can help you with selling and buying. If you are buying and selling in different states have your main agent connect you to the other agent you’ll need (this will allow them to have effortless communication during this process which is critical).
Create a calendar plan! Timing is extremely important and getting with your lender and realtor to create a timeline for everything will help in minimizing errors and stress.
Prepare your home to sell… Check out my Selling Page for tips and read my blog post for Getting the Most for your Home!
Once your home is ready to list (don’t list it yet)… Start looking for your next house.
Once you’ve found a house you want to make an offer on make sure you include this in your offer: “Contingent on current home’s sale.” This will protect you (and your earnest money) if your current home doesn’t sell. check out my list HERE on ways to get your offer accepted with that contingency!
Once you’ve found a house you want to make an offer on make sure you speak with your agent on a time frame in which your current home would sell in your market. I generally say 15 days to be safe (but you can even say 30 days). Then factor in if your buying the next property cash (14 day closing) or financed (30 day closing). So, for example if your buying financed (30 days) and your current home will sell in 15 days…make your contract 45 days long. This will give you time to list your current property and get it under contract to close around the same time as your new house.
Try to close on your new house and old house on the same day and at the same title company or closing attorney. This can be specified in your contracts. But, if you have to close at different companies on the same day this can be done as well.
Plan to move from one property to the next on the same day. But, in some awesome situations the sellers’ of your new house will let you move in early (I would discuss if this is a possibility in the beginning just in case).
But, this isn’t always possible and things happen… So, see the next section on how to be safe!
Safety Net Plan
I know we all wish and pray for everything to fall right into place. But, life can be unpredictable sometimes and no one wants to end up homeless. So, here we will look at some safety nets to have in place. So, no matter what you won’t fall off the selling tight rope into a grand canyon of stress.
Make sure you 1st speak with a lender on how much you can afford for your next house.
Make sure you pick a good realtor who is telling you the correct amount you can sell your house for and in the correct time frame.
Make sure any offers you have on your new and current house are “contingent on you selling (or buying)”
Make sure you have a back up plan if your doing both at the same time for the worst case scenario (a placed you’d rent or family you’d stay with).
Make sure you make the contract long enough at least 45 days if your financing (you can always shorten it later).
Make sure your realtor contacts the buyers’ (of your current house) lender before you accept the offer. Not all lenders are the same and you want to make sure they are strong borrowers because they can be denied by the underwriters all the way up to closing.
Get the inspections done ASAP on both properties (you never know if what you’d find could make you not buy or sell).
Get the appraisal ordered ASAP this will be through the mortgage lender. But, you can have your agent bug them to get one ordered and scheduled early.
Get any other test, survey, repair, and etc. done ASAP. The sooner that all gets done the sooner you can relax knowing nothing else will mess up the timeline or cancel it all together.
Schedule moving in the beginning. Will the sellers let you move your furniture in early? Would the sellers let you move in early with a lease back agreement? Could you do a lease back agreement with the buyers to stay past closing? Can you move from one to the next on the same day? This will eliminate any confusion.
