Selling Your Current Home While Financing A New One
Don’t Forget to Back Yourself Up With a Backup Plan
When you’re selling your own house, buying a new one is not an easy task. The reason is that you need to make sure that your home is ready for prospective buyers, research the best price to list it at, and then time the sale perfectly so that you can use the proceeds from the sale to purchase your new home. Buying and selling a home at the same time isn’t impossible if you plan carefully and understand your finances well.
Is it possible to buy a new house before selling my old one?
It is possible. The financials need to be considered before proceeding.
Your down payment and moving costs will need to be funded if you purchase a new house without selling your current one. You can use a bridge loan, for example, to bridge two mortgages so that you have breathing room while you wait for your old house to sell. A bridge loan is a short-term loan specifically designed to bridge mortgages for two different houses. There may be a requirement for substantial equity and high-interest rates in order to qualify.
When closing on a new home, consider negotiating the timeline. Having more time to sell your home is possible by extending the closing date. You can also negotiate a contingency clause – you’ll only buy a house if you sell yours first. There might be multiple bids on a property in a seller’s market, making this harder to negotiate.
Before selling a home, how long should I own it?
You can either move now or wait a bit if you really need to. Selling your home can be the only option if you are facing a divorce or relocating for work.
The first thing you should consider when it comes to selling is the cost. The risk of losing money is high if you do it too soon. Generally, most experts recommend that you stay in your home for at least five years to recoup some of the costs involved in buying and selling a home – realtor, attorney, and moving expenses. Selling your home yourself will save you some of these fees, of course.
The real estate market in your area will also determine when you should sell your house. You might be able to turn a profit if the value of your home increases. When you sell the home before you’ve owned it for many years, you may have to pay capital gains tax – what you pay based on the property’s profit. The majority of what you’re paying on a mortgage is interest when you pay it down at the beginning. Your money may go to waste if you sell your home too soon since you may not have much equity.
How are my finances?
When buying and selling a home, it is imperative that you know your credit situation. You may be able to get a competitive interest rate or a high-interest rate depending on your credit history. In addition, if you’re wondering if you can sell your house and buy a new one with bad credit, you probably won’t be able to do so.
When you buy a new home, you have to take out a new mortgage, and your credit history plays an important role in whether lenders will loan you money. The down payment also needs to be considered – bridge loans, as mentioned above, are expensive. The process of coming up with the money on your own will need to be figured out if you decide not to get a loan.
Calculate the financial impact of different scenarios – selling your old home before you buy a new one or vice versa, timing the closings so both homes close on the same day, etc. The cost of moving and attorney fees must be covered by cash in each scenario.
Backup Plan
You never know when things will go wrong – maybe one of the closings will be delayed, or the buyer’s financing will fall through. It can be helpful to include contingencies in your purchase agreements without sacrificing too much money.
It is a good idea to have a few backup plans in case something goes wrong. Renting a short-term home and storing it until you find a new one (or close on an existing one) is an option, as is asking buyers to do a rent-back agreement. In this way, you can remain in your current house for a set period of time before moving to another one.
There are many challenges associated with buying and selling a house at the same time, no matter what situation you’re in. Making the process easier will require you to keep an eye on your budget, research the real estate market thoroughly, and know what you can negotiate when it comes to each property.