How To Buy and Sell a Home at the Same Time
July 13, 2022
Buying or selling a home is difficult enough on its own, but when you add in the complexity of selling and buying a house at the same time, it becomes an even more daunting task. Selling and buying a house at the same time is one of the greatest tests of multitasking that you will ever undertake. It’s important to understand the home buying and selling processes and what to expect from each before you attempt to do both at the same time. In this blog post, we tell you how to buy and sell a home at the same time while avoiding the common mistakes that can occur.
Selling And Buying House At Same Time: What To Consider
Despite the title of this blog post, most people selling and buying a house simultaneously don’t actually do both at the same time. There are three main methods for buying and selling simultaneously: buying a house before selling, selling your house before buying another, and doing so actually at the same time. The best method for you will depend on your personal circumstances, such as your timeline, your budget, and the real estate market conditions.
Buying A House Before Selling Yours
The major advantage of buying a home before selling is the certainty of where you’ll be living after your home sells. Not knowing where all of your belongings will go and where you will live after selling your house can be a lot of stress. The downside to buying a house first is that you won’t have the funds from selling your house to pay the closing costs and you may be responsible for paying two mortgages temporarily. This method may work for you if you have a lot of financial flexibility, but if you’re strapped for cash, you’ll want to explore additional options for covering closing costs.
Bridge loans are a form of short-term financing that provides the funds necessary to complete a transaction while more long-term financing is still pending. They are commonly used for real estate transactions in circumstances such as buying a new home before selling your old one.
Depending on the lender, the maximum amount that you can borrow with a bridge loan is 80% of the combined total value of your current home and your next home. There are two ways bridge loans are typically used when buying a house before selling.
- The bridge loan is used to pay off the rest of your old home’s mortgage and the rest goes to the down payment on the new house.
- The bridge loan borrows against the equity in your current home to provide the funds necessary for the down payment on the new home.
Once you sell your old home, you then use the proceeds to pay off the bridge loan. Bridge loans are a great way to pay the 20% down payment on a new home so that you can avoid paying for PMI (Private Mortgage Insurance) in the long term. However, there are downsides to using a bridge loan.
Bridge loans usually have to be paid off in 12 months or less with a lump sum payment required at the end of the term to pay off the rest of the loan. Since the loan terms are shorter, bridge loans have higher interest rates than traditional mortgages.
Bridge loans also have a general requirement of at least 20% equity in your current home, solid financial health (including credit), and lower than a 43% debt-to-income ratio in order to qualify. Lastly, bridge loans are leveraged against your current home, which means that if you default on the loan, you could lose your home in a foreclosure.
Home Equity Line of Credit
A Home Equity Line of Credit or HELOC is a line of credit that borrows against the equity that you have in your home. A HELOC works similarly to a credit card. You are able to borrow funds up to a certain credit limit set by the lender that you have to pay back with interest.
HELOCs typically have two phases: a draw period where you can borrow funds and a repayment period where you have to pay back the loan. During the draw period, borrowers can withdraw money from the line of credit up to the limit set by the lenders. The draw period can last up to ten years but each lender has different terms.
After the draw period is the repayment period where you have to pay back the loan with interest. From this point on, the borrower cannot withdraw any more money from the HELOC. HELOC contracts have payments during the draw period but at most lenders they will be for the interest only. The payments in the repayment period become a lot higher since you are paying the interest along with the principal. Many lenders allow the repayment period to last 20 years. There is a lot of flexibility with HELOCs because you can use or re-use them for long periods of time and for the variety of ways you can access the borrowed funds.
Personal loans are a popular option to raise money for a down payment on a house. Like most loan options, you need to have good credit, strong financial history, and a solid debt-to-income ratio in order to qualify. When it comes to the type of personal loan, there is a lot of flexibility but the main two are unsecured personal loans and secured personal loans.
Unsecured personal loans are not backed by any collateral like your savings account or house. Lenders rely on your track record of making payments on time in order to give you the loan. Unsecured loans have higher interest rates because of the risky investment for the lender.
A secured personal loan is when you put up collateral to back the loan. If you default on the loan, the lender can take your collateral in exchange. Secured personal loans have lower interest rates because the investment is not as risky for the lender.
401(k) or other investment account loan
You can borrow money against your 401(k) or another investment account and use the funds to pay the closing costs of your new house. With a 401(k) loan specifically, the interest rates are low and usually you can borrow up to half the balance in your retirement account or up to $50,000. The IRS states that you have 5 years to pay off the loan or earlier without a prepayment penalty. Here are some more benefits of using a 401(k) loan…
- Allows you to use the funds in your retirement account without paying the taxes and penalties.
- 401(k) loans are not seen as a line of credit and have no effect on your credit score. They also don’t require a credit check to qualify.
- 401(k) loans have the interest tax-deferred and you won’t have to pay the taxes on the interest until the 401(k) is distributed.
However, there are downsides to using a 401(k) loan to come up with the down payment for your house. One is that since the loan is borrowed against your employer-sponsored 401(k) account, leaving your job expedites how long you have to pay off the loan. Sometimes making the deadline to pay off the loan the next time your federal income tax is due.
Another risk of getting a 401(k) loan comes from the consequences of missing payments. The missed payments will be treated as a distribution from the 401(k) which will result in tax payments and bonus penalties.
Alternatives To Paying The 20% Down Payment
Lastly, you can also look for mortgage options that allow less than a 20% down payment. FHA loans require at least a 3.5% down payment while USDA and VA loans don’t require any down payments at all. There are also conventional loans that allow borrowers to put less than 20% down on a house. However, putting less than 20% down often results in paying more for the mortgage in the long term by a substantial amount. Not to mention the extra fees for Private Mortgage Insurance (PMI).
Read More: How Much Should You Put Down on a House?
Use a Home Sale Contingency
When buying a house before selling your own, some homeowners use a home sale contingency. This contingency is a provision to your real estate offer that states the purchase of the house is contingent on if your current house sells. A home sale contingency can protect you from being stuck with two mortgages if your current house doesn’t sell as soon as you would want. They can give you peace of mind when buying a house, but the odds of a seller accepting your offer with a home sale contingency are lower than an offer without one. Sellers are typically looking for offers that will most likely go through and not get delayed. The more contingencies, the more likely the seller will deny your offer.
Get Help From a Real Estate Professional
Finding a good real estate agent to help you through the home buying process is one of the most important steps when buying a house. Not only will they help you find a house that meets your needs, but a good real estate agent will make an attractive offer and be able to close the deal on whatever timetable you have. This proves especially useful when you are also selling your house and don’t have a lot of time to spend looking for one to buy.
However, not all real estate agents are good at what they do. If you want a streamlined way to find a good real estate agent, then work with a Negotiator. Negotiators are real estate agents that have all proven themselves to be top performers in their local real estate markets.
By hiring a Negotiator, you’ll have someone on your side who has a wealth of real estate expertise and an unrivaled work ethic working to get you the best deal possible. Contact your local Negotiator if you want to work with a good real estate agent.
Selling a House Before Buying Another
The main reason people choose to sell a house before buying one is for financial simplicity. You’ll have the funds from selling your house to put toward buying a house and you don’t have to worry about taking out any extra loans. On the downside, selling your house before buying one means that you will most likely move twice. You’ll need a place to stay while you close on a new home somewhere to keep all of your belongings. Here are a few things to consider if you’re thinking about selling your house before buying a new one.
Use Best Practices To Sell Your House Fast
When you’re buying and selling your house at the same time, you want to get the most money for it on a timetable that is convenient for you. A house takes on average 55 – 70 days in order to sell and the longer a house stays on the market, the harder it typically gets. However, there are best practices to follow that can help you sell your house as fast as possible.
- Price your house correctly.
- Look for cash offers.
- Prepare your house for open houses and listing photos.
- Take care of any maintenance or repairs before the home inspection.
- Write great listing descriptions.
- Improve your house’s curb appeal (Read this article for tips on this topic).
Prepare For The Transition Period
If you’re selling a house before buying, then there may be a period of time when you don’t have a home. During this period of time, home sellers will have to find somewhere to live temporarily along with a place to put their belongings. Many sellers look to month-to-month renting in this time period as it can be a flexible way to move without the hassle of a long-term lease.
Sellers can also use a rent-back agreement to stay in their old house longer. A rent-back agreement is when the new buyers agree to let the seller stay in their old house for a certain period of time after the sale goes through. The sellers then make rental payments to the buyers while they stay in the house. Since we’re in a seller’s market, house sellers get more freedom to use rent-back agreements without the deal being compromised.
There is also the matter of dealing with all of your belongings. You can look at renting storage units, getting rid of items you don’t need, or asking friends and family for help storing things as you look for a new place to live.
Third Option: Buying and Selling Your House At The Same Time
It is possible to buy and sell a house at the same time but the process requires a lot of coordination. You will have to work diligently to make sure both processes move along as needed. Negotiating with the buyer and seller to get the closing dates on the same or a convenient day can be difficult depending on the needs of each party. The entire process of organizing both real estate transactions is a lot easier if you are working with an experienced real estate agent. A real estate agent can juggle the needs of all parties while making sure you get the best deal possible.
The Negotiators are a new type of real estate organization that streamlines your search for a high-quality real estate agent, otherwise known as a Negotiator. Negotiators have all proven themselves to be top performers in their local real estate markets and as leading experts when it comes to buying or selling a house.
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