From the Home of Your Means to the Home of Your Dreams
Your house was an exciting find when you bought it, a place to call home and start building a life. If it was your first home buying experience, it may have been the home of your means rather than your dreams. Perhaps it was a bit older and a bit smaller than you would like today.
Now that you and your partner have solid careers, more savings, and a greater share of expendable income, you’re looking to move up. A better neighborhood, newer accommodations, and a bright new future await.
Can you sell your old home and buy a new one at the same time? It sounds like a difficult juggling act, and it is. But it can be done, and there are certain pitfalls to avoid. Let’s take a look at the basics, some common mistakes, and how it all might just work out in the end.
Selling One Home While Buying Another
When you bought your first home, you only had to worry about one mortgage. If you’re looking to move, you may have to juggle two mortgages at once. The timing between selling one home and closing on another rarely works out in perfect sync.
As you’ll remember, the process of buying a home is complex and time consuming. So is selling one. Now you have to worry about both. The first time, you only needed to convince the bank you could pay for one property. How do you get a loan for the second one?
The key to overcoming all these obstacles is organization and financial discipline. You must expect that mortgage lenders will take an even harder look at your financial situation this time.
If you can afford to manage two mortgages for a short time, the least stressful approach is to purchase your new home before selling your old one. It’s simple, you’ll have a place to live and no worries about temporary housing or a short-term rental. This can work in today’s housing market, where available homes are in short supply and your old home stands a good chance of being picked up quickly, especially if you’ve prepared it for a quick sale.
Bridge Loan or Home Equity?
Bridge loans provide short-term financing to meet immediate cash flow needs when a near future event is expected to cover the loan. Bridge loans cover the gap. In business, this is often the period between winning a contract and when payment on the contract begins to flow.
In selling and buying a home, a bridge loan can cover what you have left on your current mortgage plus provide a down payment for your new home. It all depends on how much equity you’ve built up in your current property.
With a typical bridge loan, you borrow the difference between your current loan balance and up to 80% of your home’s value. You pay it off when you sell your current home, which is expected to be within 6 months to a year.
Bridge loans can help when you need to sell your new home quickly while trying to buy another. A job transfer to another city is a good example of this situation.
Another option to look into is a HELOC or Home Equity Line of Credit. This is a line of credit based on the equity in your home. You can draw on the line of credit to help with the down payment and other expenses on your new home. HELOCs generally carry low interest rates, but those rates may be variable, so do your research and choose wisely.
There are even more possibilities, including a 401(k) loan against your retirement account, where you pay yourself back over a period of years, or even a withdrawal of retirement funds if you are 59 ½ years of age or older.
Pitfalls to Avoid
With the housing market so competitive, it is not a good idea to make the sale of your current home contingent on finding a new one. To a buyer, this signals that your house is not really for sale, and most will pass you buy. Who wants to hear the news that you’re keeping your current house after all?
Making a contingent sale also puts you at a disadvantage. In recent years, houses have been going to top dollar prices, and tying your sale to your success in finding another home is sure to lower its value, if you do manage to get interest.
A more viable variation on this idea is to see how long you can draw out the closing process. Usually closing on the sale of your first home will completed within about a month. But it doesn’t have to. You could try to work out an extended closing with the new owners. That way, they are not risking whether or not they actually own the property they want, they are simply waiting a little longer to close and move in. Even a few weeks could give you just the extra time you need to buy your second home.
Even if this is your second home buying experience, you’ll find solid information in our “First Time Homebuyer Guide.” This 40+ page guide delivers a range of critical information from Understanding the Mortgage Process and Types of Loans to Avoiding Discrimination and which states have no LGBTDQ+ Housing Protections.
Find the Help You Need
The LGBTQ+ Real Estate Alliance, a 501(c)6 organization, was launched in June 2020 by leading members of the real estate industry. The mission of the Alliance is to Advocate, Elevate, and Celebrate. The Alliance advocates for fair housing for all and promotes LGBTQ+ homeownership.