Buying a home is difficult enough in today’s housing market, but try adding the extra pressure of selling your current home, too. Many homebuyers face this two-step transaction, whether they are relocating for a new job, upgrading to a new home or downsizing in retirement.
Last year, 89 percent of repeat buyers sold or planned to sell their previous home, according to the National Association of Realtors. The key is to understand how the market is going, know your financial limitations and have plans for bumps in the road ahead of time, real estate experts say. Here, USA Today tells you what you should know.
1. Can you afford to carry two homes if you don’t sell yours first?
You must be able to manage the potential monthly payments of both homes if you expect to get a mortgage for the second home and already have one on the first. If it’s too much debt relative to your monthly income, the mortgage lender won’t approve the second home loan.
If you do qualify for a new mortgage while carrying your old one, you must make sure that you’re comfortable with the idea that you could end up with double payments.
2. Do you need to tap the equity first?
Other borrowers may need the proceeds from the sale of their own home to fund the down payment or full purchase of the second home. If you can qualify to carry both mortgage payments but require the equity in your first home to buy the second, there are two possible options: Get a home equity loan or line of credit from another bank that can be used toward the down payment, or put down less than 20 percent and have your home loan modified later.
A modification doesn’t change your rate, but can lower your monthly payment. It’s also less costly than refinancing.
3. Get your home ready for sale
If your old home stands in the way of buying your new one, it’s time to get serious about selling. If possible, move out so the home can be staged for sale. If not, declutter, refresh with new paint and fix any issues before putting up a for-sale sign.
It’s also important to avoid overpricing your property, which could make selling it even more difficult because it will likely sit on the market and make people wonder whether something is wrong with it. Even if you get a higher price, it still must appraise for that price for the buyer to get a mortgage.
4. Don’t hamstring your offer
Like any homebuyer in today’s market where sellers have more of an upper hand, any offer you put on the new home should come with a mortgage preapproval. It’s also recommended that you sell your first house before making offers on your second, especially if you’re planning to pay the full price on the next home.
At the very least, wait until your house is under contract before making an offer on other ones. In many hotter markets, buyers are putting in bids that have few contingencies. Having a contingency that you must first sell your house makes your offer less attractive. If it’s in contract, then it’s a stronger offer. Be prepared to allow a first-right-of-refusal for the seller if your offer comes with a home-sale or home-closing contingency.
5. Work with the same broker
If you’re selling and buying in the same general area, it might make sense to use only one real estate agent for both the sale and purchase of your homes. That way, the agent can accurately communicate to the listing agent of the second home what is happening with the first. This will make it easier to coordinate two closings, among you, your buyer and the seller.
6. Have a plan B
A big worry for the seller-buyer is the timing of the two transactions will be off, and they’ll have two homes at a time or nowhere to live. Put away one to two times the monthly mortgage payment for your first home in case you end up carrying both homes for a while. That extra money can be used for a short-term rental from AirBnB or VRBO if you haven’t found a home fast enough after selling your first.
Another option is a post-sale occupancy agreement with your buyer that allows you to stay in your home for a specified period after the sale closes. Part of the funds from the sale typically are held in escrow as a security deposit for the buyer, who is now the new owner. You receive these funds after the rental period is up and the new owner assesses there is no damage to the property.
