Successful Strategies for you to Buy First, Then Sell
This five-part series is a “how-to” guide for finding your next home while selling your current one. Whether it’s your first time moving up or you’ve done it before, we hope 4 Easy Steps for Buying and Selling at the Same Time is a great resource!
This week’s blog post is for buyers whose lenders have approved them to purchase their new home first and then sell their current home.
But first, make sure you’ve read the blog post, The Big Question: Are you Going to Buy First or Sell First?. That way you’ll have already figured out your answer and know that for you, buying first is the route you will take.
Figuring out your down payment
There are several ways to get cash out of your current home or other investments without selling them. I’ve listed a few below:
Borrow from your current home
As long as your lender can still approve you for buying first, consider adding a home equity line of credit (HELOC) in addition. Or get a cash-out refinance to obtain the cash you need out of your current home while still living there.
However, lenders might look favorably on obtaining both loans at the same time. Some buyers can qualify for both, while others cannot. It may mean gaining a HELOC or cash-out finance one year and then moving forward with purchasing a new home the following year.
This is why we advise clients not to pay down their mortgage aggressively. You can borrow against your home’s equity, but you wind up paying for it in interest. However, if you put any additional money in a savings account instead, you will have liquid assets to use for a down payment.
Borrow from yourself
Depending on the type of retirement account you use, you may be able to “borrow” against your retirement early to purchase a primary residence. Depending on your situation, the interest rate of paying back your retirement could be much lower than taking out a loan.This is a higher-level investment strategy that we can help you walk through. It’s a great way to create your very own “bridge loan” by borrowing from yourself. Before using this strategy, you should talk with your financial advisor and accountant.
Bridge loans
Speaking of bridge loans, there are several options available from lenders. This short-term loan helps you “bridge the gap” between buying a new home and selling your old one. It’s like a temporary financial cushion, allowing you to make a down payment on your new house before you’ve actually sold your current one.
Not every bank will offer them, but we have a list of those that will. We do try to have our clients avoid this option because bridge loans are very costly and you’ll pay points and incur expenses that could have been avoided if you went with another strategy above.
How to decide which strategy is best for you
When you meet with our team, we’ll take a look at your entire financial picture and long- and short-term financial goals. That way, we can recommend the best course of action for you.
We can also recommend a lender who understands these types of transactions and can determine what is financially possible for you. For example, we don’t want to advise you to take out a loan to buy if that means you won’t be approved for a new home before selling your current one.
Maybe you may want to buy first and then take your time finding “the one.” Only your lender can tell you whether that’s possible.
Once you meet with your lender and tell them what you’re comfortable paying per month on your new home and the amount you have for a down payment, they will provide you with a price range for purchasing a new house.
As you can see, this part of the process takes a bit of planning, and that is why we tell clients to reach out to us well before they need to move. By working with us as early as possible, we can put together a plan to buy first the “right” way and avoid unnecessary stress and costs.
Time to make a plan
Now that you have your financing in place you can start looking at homes in your price range and in your preferred neighborhoods.
1. Finding your new home first
One of the benefits of buying your new home first is that there’s no pressure to rush to find the right home. You can take your time and find your forever home or your five-year dream house.
Plus, once you do decide to buy, you’ll have time before moving in to renovate or prep your new home for your family. It’s the perfect time to paint rooms, slowly move in furniture, and declutter so you can stage your current home to sell faster.
The clock really doesn’t start ticking until you actually buy (or put an offer) on a new home. And then you’ll have two mortgages!
2. How to time everything to make sure you don’t own two homes for long
One of the disadvantages of buying and selling at the same time is that if you buy first, you will own two homes at once and may have two mortgage payments for a while. This cost will all depend on how soon you can sell and close on your current home.
It’s preferable to have a firm plan in place so that you don’t waste any time between homes and can close on both in as short of a timeframe as possible.
It’s important to understand the market’s flow, especially during the lull over the winter holidays or at the chaotic peak of the spring selling season. You don’t want your current home on the market at a time when you can’t get the most for it!
Working with your agent as soon as possible is crucial to determine the average selling time frames in the neighborhood in which you are looking to buy and the neighborhood you are selling in.
3. Focus on selling your current home at the same time (but don’t put it on the market yet)
Now that you’ve figured out your plan and timing, you can begin preparing your current home for sale. That way, you’re ready to put in an offer on a new home when you find one!
If you live in a condominium, you need to consider a whole other set of factors when putting it on the market. Remember that your buyers want a stable and financially secure condo association.
Be willing to do what it takes to sell your current home in a timely manner. That means to price it well and fairly. It’s not time to think too high and get zero offers, causing your home to sit on the market longer than you would like.
Once you buy, your goal is to start living in your new home ASAP (unless you’re considering renting out your old house). Every month is another mortgage payment on your former home as long as you own it. Factor that into your budgeting and sales price.
That doesn’t mean you should shortchange yourself or become desperate to sell. That’s why the marketing and timing of your sale will play a big part in how you price it and we are here to help every step of the way.
This concludes our five-part series, 4 Easy Steps for Buying and Selling at the Same Time: a how-to guide on buying and selling simultaneously. We hope you’ve enjoyed it!
Remember, every buyer is different, and what’s possible for you depends on your unique financial situation and goals.
Next step: schedule a conversation with me! We can make a plan so you can get from where you are to where you want to be. We can’t wait to help make your buying and selling experience as easy as possible!
