In honor of the recent Easter holiday, I'm talking today about the age old question: when buying and selling simultaneously, do I sell this house first or buy the next house first? And what if I need to sell this house in order to afford the next house? The chicken or the egg.
Everyone wanting to buy, but needing to sell, tends to live in this same space of uncertainty until a life event forces them to make a move. There's a lot of gray area surrounding best practices when it comes to buying & selling simultaneously. I'm going to do my best to break this down as simply as I can, and offer several tangible, and actionable solutions to navigate this process.
Ok so first things first, you have to get some professionals involved and get some real numbers on paper. The three main questions we're looking to answer in this stage are: 1. How much is my home worth? 2. Do I need to sell it in order to purchase my next home? And 3. How much "house" can I afford next? Truly, you cannot move forward until these questions are answered. So, find a real estate agent you love and trust (aka yours truly) and it's time to get to work.
First we'll complete a thorough walk through of your home. I'll offer suggestions and advice to sell it for top dollar, and will leave you with a solid understanding of what your home is worth.
Then, I'm going to recommend you speak with a lender immediately (I have some incredible lending partners I work with that I'd love to refer you to!) We need to know how much "house" you can afford next, and if it's going to require you selling your current one in order to make the new house a reality. In figuring out the dollar and cents, we'll also be able to figure out the logistics for your next move.
We won't actually know what's feasible until your file goes through the lending desktop underwriting system. Even if you think you can swing the monthly payment on two mortgages, the system basically spits out a yes or a no based on lending guidelines, your credit, and your debt to income ratio. In short, it's not up to you. You have to qualify based on current lending guidelines. And remember, in order to buy before you sell, you've got to have the funds for the down payment (minimum 5% of the purchase price plus closing costs ~3% of the purchase price for a conventional loan.)
I'm going to break down the possible outcomes, and a few different scenarios of how we can work the system:
Scenario 1: You do not qualify for two mortgages. You absolutely must sell your current home in order to afford your next home.
Option A: The most traditional route here would be to make your offer on the new home contingent on the sale of your current home. In full transparency, contingencies are not popular. They are risky for the seller (of the house you are purchasing), and leave a lot of room for things to go wrong. It means your house needs to be ready to sell like, yesterday, and it's got to be priced perfectly so that it sells within the timeframe of the negotiated closing date of the home you're purchasing. But, never fear, contingencies are common, and we make them happen all the time.
Option B: Sell your current home, and have a place lined up to live until you close on your next home. This is a great short-term option. If you're extra picky about the home you want next, I do not advise this option. Living in a short term rental, or shacking up with your parents is never ideal for long periods of time.
Scenario 2: You qualify for two mortgages, but for a much smaller dollar amount than you were anticipating.
Option A: See Scenario 1, and start from there.
Scenario 3: You qualify for a home in your desired price range without having to sell your current home first, but you don't have the down payment + closing cost funds to make it happen.
Option A: Cash out refi OR HELOC your current home to pull out some of the equity and leverage it as the down payment for your next home. Sell your current home as fast as possible to pay off the loan. Keep in mind, this also requires qualifications, and a lender can help you navigate this option further!
Scenario 4: You qualify for a home in your desired price range without having to sell your current home first, but you can only put down 5% and that makes the monthly payment too high.
Option A: Negotiate a long closing for your new property (think, 60 days.) And sell your current home within that timeframe so you can immediately apply the closing funds to your down payment.
Option B: Close on both properties as fast as possible, then re-cast your loan with the proceeds from the sale of your current home. This essentially resets the amortization schedule on your loan. So if you are going to recast, do it immediately, not five years from now. Note: this does not change your interest rate, this is not the same thing as a re-fi (and it costs just a few hundred dollars to execute!)
Option C: Rent out your current house, and offset your new mortgage with the proceeds from your now rental property.
At the end of the day, it's going to come down to the inventory, and how quickly you can find your next home. Based on what I've seen first hand, my best advice is to find your next home first- especially if you are a picky purchaser! While we wait for the perfect house, it's crucial you use this time to prepare your current home for market. This means power wash, paint, spruce up the garden bed, fix the broken pool pump, etc.
Once we go under contract, it's going to be a whirlwind of excitement as we clean, stage and photograph, and show your current home while I help you through the lending process of your new home. Once both homes are under contract, you can officially breath a little easier. And within 30-60 days, you will have successfully navigated the "move up buyer" process.
If you're ready to start the buying & selling process, I'd love to chat! Call or text: 407.466.2103.