It’s bittersweet, but time to move. Whether you want more space, a new neighborhood, or are moving to a new city, what you want in your next phase of life is possible and your home is a huge part of that. When you need to buy and sell at the same time, it comes down to planning to make sure everything happens at the right time, in the right order.
Buying a new home while still owning a current one can be a bit more complex than purchasing a first home. As a realtor, I have helped many clients navigate this process successfully. In this blog post, I'll break down the ways you can buy your next home when you own a home. Before you select any of these options you want to be in communication with a top local realtor. Check out this article on interviewing a realtor to sell your home.
Top five options to be able to buy your next home and sell your current home:
OPTION #1: Sell Your Home First
OPTION #2: Buy Your Next Home First
OPTION #3: Bridge Loan
OPTION #4: Contingency Offer
OPTION #5: Home Equity Line of Credit (HELOC)
***No matter what your situation is, I can work with you to design a plan that makes the most sense for you. Keep reading to explore your different options!
Option 1: Sell Your Home First
Depending on your particular financial situation, you may need to sell your current home first before buying your next home. Sometimes you can’t be approved to buy first, and you have only one option. This strategy helps you avoid the financial burden of two mortgages at the same time. You'll have cash from the sale to use towards your next home, and you'll have a better idea of how much you can afford to spend. To execute this option, you'll need to find a buyer for your current home, close the sale, and then start looking for your next home.
If you're in a competitive market, you may want to consider selling your home before you start looking for a new one. This will give you a stronger negotiating position when making offers, as you'll have cash in hand and won't be contingent on selling your current home.
Don’t fret! I’ve got specific strategies I will review with you that will have you jumping for joy and show you how you can get the most out of your current home FIRST so that you can be sure and find that perfect next home, right when your current home goes under contract. This strategy can help you avoid the stress of carrying two mortgages, but it also requires some planning and coordination to ensure that the timing works out.
It’s a balancing act for sure, but following my lead, I will make sure you do both seamlessly with your current home going under contract and to settlement before you have to close on your new house.
Option 2: Buy Your Next
Home First
In some cases, it may make sense to purchase your new home before selling your current one. This option can be beneficial if you're moving to a new area and want to
secure your new home before prices rise or inventory becomes scarce. It can also be useful if you're renovating your current home and need to move out temporarily.
You might qualify to buy your home first before selling your current home. To execute this option, you'll need to have the financial resources to carry two mortgages simultaneously. You'll also need to be prepared to carry the additional costs associated with owning two properties, such as insurance, property taxes, and maintenance. For those of you who can be approved for this, congrats! That means you can spend time looking for a home before putting your home the market.
Many of my clients decided to take this option for their move. The biggest reason why is that they have young kids and/or pets, plus working from home. The idea of having to move into temporary housing while kids are in school and they were working from home was going to be a logistical nightmare. If you have enough cash on hand or if you can tap into the equity of your current house to purchase your next house, make the move, and then immediately sell your existing home. Your future self will thank you!
That said, however, there are still things we need to do while you are looking for your next home to make sure you can still sell your current home quickly. There is a lot of planning and many details involved with this step, but with a little upfront work, it’s possible to buy and sell at the same time and not have to hold on to two homes for long or at all!
Yes, there is a lot to figure out, but I’ve done this for clients many times and I can walk you through the process so you understand what needs to happen when and how you are going to pull off buying and selling at the same time, fixing up your current home, moving and staying sane all at the same time. It is possible and I can show you how.
Right now, it is pretty easy to purchase a home with a lower down payment. 20% is always the gold standard, but I am still seeing most buyers going with 15% -10% down and even occasionally 5%. Plus, as soon as your old home sells, talk to your lender about using the proceeds from the sale to adjust your new mortgage!
Option 3: Bridge Loan
A bridge loan is a short-term loan that can help you bridge the gap between buying your new home and selling your current one. This type of loan allows you to access the equity in your current home to purchase your new home before you've sold your existing one. The loan is typically repaid when you sell your current home.
Bridge loans can be a good option if you need to move quickly or if you're in a competitive market. However, they can also be expensive, with higher interest rates and fees than traditional mortgages. You'll need to carefully consider the costs and make sure you're comfortable with the repayment terms.
Bridge loans are less common in today's market due to consumers being able to utilize a home equity line of credit (HELOC) instead.
Option 4: Contingency Offer
A contingency offer is an offer to purchase a new home that's contingent on the sale of your current home. With this type of contingency, the sale of the new home is dependent on the successful sale and settlement of your current home. This means that you'll only buy the new home if you're able to sell your existing one first. This option can be useful (to you as a buyer) if you don't have the financial resources to carry two mortgages.
To execute this option, you'll need to find a seller who is willing to accept a contingency offer. This can be challenging, as many sellers prefer non-contingent offers. You'll also need to be prepared to move quickly to sell your current home, as most contingency offers have a limited time frame.
Here's how it typically works: You make an offer on a new home, but the offer is contingent on the sale of your current home. If you receive an acceptable offer on your current home, the contingency is met and the sale of the new home can proceed. If you do not receive an acceptable offer on your current home within a specified timeframe, the sale of the new home may be terminated or renegotiated.
This type of contingency can be beneficial because it allows you to make an offer on a new home without having to worry about carrying two mortgages at the same time. However, it's important to note that it can also make your offer less attractive to sellers, especially in a "Seller's Market" who may prefer a buyer without a contingency. Yes, it's still less attractive, even if your home is presumed to be a home that would sell quickly in a "Seller's Market". There is still a considerable risk to a seller to work with that type of offer in any market.
If you're considering making a contingency offer that your current home must sell in order to purchase your next home, it's important to work closely with your real estate agent and lender to ensure that you fully understand the terms and conditions of the contingency and in the event you are able to get a contingent offer accepted, that you're prepared to move quickly to sell your current home once you've found a new one.
IMPORTANT NOTE: Before you decide this is your path, PLEASE call me at least a month (preferably more) in advance. We MUST make sure your home is ready so you can win with this type of buy/sell scenario. This option went away for a few years because of the speed of our market, but I’m starting to seeing it make a come back in certain situations.
Option 5: Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a type of loan that allows you to borrow money against the equity you have in your home. Equity is the difference between the current value of your home and the outstanding balance of your mortgage.
With a HELOC, you can access a line of credit that is secured by your home. You can use the funds for a variety of purposes, such as home renovations, debt consolidation, or education expenses. HELOCs work like a credit card, in that you have a limit and can borrow up to that limit, pay back what you owe, and borrow again as needed. You only pay interest on the amount you borrow, not on the entire credit limit.
Using a HELOC from your current home to use as a down payment on a new home purchase can have some potential advantages, including:
Access to funds: A HELOC can provide you with quick access to funds, allowing you to make a down payment on a new home without waiting for your current home to sell. This can be especially helpful in competitive real estate markets where homes may sell quickly.
Lower interest rates: HELOCs generally have lower interest rates than other forms of credit, such as credit cards or personal loans. This can save you money on interest charges over time.
Tax benefits: In some cases, the interest paid on a HELOC may be tax-deductible. However, it's important to consult with a tax professional to determine whether you qualify for this deduction.
Flexibility: HELOCs offer more flexibility than traditional mortgages, allowing you to borrow and repay funds as needed. This can be helpful if you need to borrow additional funds for home improvements or other expenses down the road.
It's important to note that using a HELOC as a down payment on a new home purchase also comes with potential risks and drawbacks. It's important to carefully consider all factors and consult with a financial advisor before making any major financial decisions.
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The above article “How Do You Buy Your Next Home When You Already Own a Home?” was provided by Kelly Gibbs. Kelly can be reached via email at kelly@kscincy.com or by phone at 513-290-6216. If you’re thinking of buying or selling a home or investment property in the Cincinnati area I would love to share my marketing knowledge and expertise to help you! Contact me today!
I service the following Greater Cincinnati, OH areas: Amberly, Anderson Township, City of Cincinnati, Clifton, Columbia Tusculum, Blue Ash, Deer Park, Hyde Park, Indian Hill, Kennedy Heights, Kenwood, Loveland, Madeira, Madisonville, Mariemont, Mason, Milford, Montgomery, Mt. Lookout, Mt. Washington, Newtown, North Avondale, Northside, Norwood, Oakley, Pleasant Ridge, Silverton, Sycamore Township, Symmes Township, and Walnut Hills.