More often than not, when a homeowner considers moving they will have to sell their current home to afford their next one. This scenario has its challenges, but in this post, we will explore the strategies and alternatives to help you avoid any shortfalls.
Whether you’re looking to maximize your budget or maintain control over your expenses, this post aims to equip you with the knowledge you need to navigate the complexities of buying and selling homes.
Why Sell Your House First?
Buying a new home before selling presents challenges, but the financial benefits can outweigh the downsides.
Market Conditions:
Real estate consultant Terry Young emphasizes the importance of selling your previous home first. This approach provides a clearer understanding of your budget for the second home. Additionally, you can use the proceeds from the sale for a cash down payment and other fees.
As 2023 comes to a close, it is evident that the current real estate market favors sellers. Limited inventory and competitive bidding have driven prices up. Consequently, it is wise to consider selling your home before purchasing a new one. This decision allows for a more deliberate sale, effective budgeting for your future home, and improved negotiation leverage. Furthermore, it helps you avoid the burden of carrying two mortgages simultaneously and minimizes the risk of unexpected expenses.
However, there are drawbacks. Renting a property after the sale may lead to additional expenses and the inconvenience of moving twice.
Sell before buying alternatives:
1. Rent Back:
Negotiate with the buyers to lease your property for up to 60 days, benefiting both parties. You can propose to the buyers of your home that they lease the property to you for up to 60 days. This arrangement allows both parties to benefit – the buyers receive cash back and the sellers get to stay in the home while closing on their new one and moving out.
2. Extended Closing Period:
It can be a risky option to keep the home under contract while seeking flexibility. Extending the closing period means the buyer can still back out, making it the riskiest choice.
3. Consider temporary housing:
Options such as rentals, staying with family or friends, or exploring platforms like Airbnb. In her experience, Young suggests that many sellers choose alternatives like staying with family or friends instead of temporary rentals. Nowadays, with the rise of Airbnb, some sellers opt for this option.
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Buying First? Consider These Tips:
Step 1: Plan Ahead
Carefully plan your property search to save time and money. The longer you spend searching for the perfect property, the more it may cost you in the long run.
Step 2: Budget Review
Being prepared to cover expenses, either in cash or with a second mortgage, is crucial. Getting pre-approved for a mortgage is a vital step that saves time and money. Remember, you can’t rely on funds from selling your current home. So, set aside money for fees like down payments, earnest money, and inspections. These fees can add up to 10% of the total cost of your new home. Make sure to save this amount in addition to your current expenses at home.
Step 3: Review your options
Bridge Loan:
If you need upfront funds for costs, short-term bridge loans can be an option. However, be aware of higher interest rates and the requirement to repay within a year or less. You can ask a borrower to finance your new house expenses, enabling you to sign the contract without selling your current home. Bridge loans are temporary solutions in these scenarios. Just remember, you must repay within a year and interest rates may be higher compared to regular loans.
Apply to HELOC:
A HELOC (Home Equity Line of Credit) allows you to access up to 85% of your home’s value for a purchase. Eligibility is determined by your credit score, mortgage balance, and home value. Consider a HELOC for a flexible financing option.
Key takeaway:
Buying before selling comes with risks, but selling first gives you more control over your budget, expenses, and credit lines. Selling your current home first ensures a smooth and stress-free transition to your next abode. If you decide to buy first, we recommend exploring different credit line options, shopping around, and saving money outside your expenses to cover upfront costs.
