Expert Tips To Smoothly Sell Your Home While Purchasing Your Next One
Selling your home while buying a new one can be a stressful process, especially when it comes to financing. If you’re looking to buy a home soon while getting rid of your current one, here’s what real estate experts recommend to make the transition as smooth as possible.
Sell Before Buying To Use Your Home’s Equity as a Down Payment on Your Next House
Don’t have enough cash in the bank for your next down payment? If you’re already a homeowner, you can do what 38% of homebuyers do — sell your home first and use the proceeds to buy your new home.
One way to do this is by closing the sale and the purchase on the same day, said Nicole Rueth, SVP and producing branch manager for the Rueth Team at Fairway Independent Mortgage Corporation.
“As long as you’re closing at the same title company, this strategy is very easy,” she said. “If you work with two different title companies, all they have to do is wire the funds from one title company to the next.”
A downside to this strategy is that it can be difficult to negotiate the same closing date with your buyer and seller.
If You Sell Before Buying, Save Enough To Cover Temporary Storage and Housing Costs
What if you can’t buy and sell on the same day? You can still sell first, but be prepared for extra costs, said Beatrice de Jong, broker and consumer trends expert at Opendoor.
“If you’re selling your home, it will likely sell very quickly. But in most cases, finding your next home will take much longer than it has in previous years,” she said. “Make sure you have somewhere to go and a place to store all your belongings.”
With so few houses on the market, Mortgage Network’s senior vice president Brian Koss advises homebuyers to save enough to live in temporary housing for a year.
“That gives you some time to think about what’s going on out there in the market,” he said. “It’s not a bad idea to get liquid and make sure your house is sold, but it does make the transition a three-step process.”
If You Buy Before Selling, Weigh Your Financing Options
Maybe temporary housing isn’t for you. In that case, consider buying a new home before selling. Keep in mind that this strategy can be more complicated because you will need funds for a down payment before you can profit off your current home.
There are several ways to approach this step. The first option is a bridge loan, which is a short-term loan against your current home.
“For this to work, you have to be able to afford three loans–the original loan, the bridge loan, and the new loan,” Rueth said. “Bridge loans are a bit expensive and usually have higher interest rates, but it’s irrelevant because you’re only going to hold it for a short period of time.”
What Adds More Value to Your Home: Indoor or Outdoor Upgrades?
Another option is to pull from your 401(k) or IRA. Keep in mind, though, that you will either need to pay yourself back with interest or pay an early withdrawal fee.
For that reason, Koss recommends opening a home equity line of credit (HELOC) on your current home instead.
“When you first think about buying a new home, it’s smart to get the maximum equity line you can on your house,” he said. “That’s the cheapest way to do it because, in that case, you only pay interest when you borrow against it. So it acts as a bridge loan but cheaper.”
The last option is to make an all-cash offer. A 2019 Redfin study showed that cash offers doubled buyers’ chances of winning a bidding war.
If you don’t have enough cash on hand, look into a company that offers a cash-backed program, such as the Opendoor-Backed Offers program.
“This allows buyers to write a cash offer, which is really helpful right now in this ultra-competitive market,” de Jong said. “Our data shows that 75% of sellers say that a financed offer had to be 10% higher than a cash offer to win.”
How Much You Need To Save To Buy Before Selling
Although buying before selling makes for a quicker transition, it also brings extra costs. Plan to pay for two mortgages until your first home sells.
You should also save enough for earnest money, de Jong said.
“Once your offer on a home is accepted, you’re going to need to deposit the earnest money, which is held until closing. That typically is 1% to 3% of the purchase price, although it varies state by state and market by market,” she said. “It sounds like a small percentage, but it’s still a significant amount.”
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