Selling your home is an exercise in trust. Even after a buyer puts in an offer on your home there’s no guarantee they will follow through with the purchase until after closing.
Avoid relying on the sale of your home in order to make a purchase decision. It is possible to buy a home before selling your old one.
Check out this overview of how to buy a house while selling your own.
Advantages of Buying Before Selling
The road to closing on the sale of your home can be tricky. In housing markets where inventory is plentiful, buyers have the advantage over sellers.
This means lower asking prices, more concessions, and a potentially slower sales process. But not every seller wants to cave into buyer demands in exchange for a quick sale.
Buying a home before you sell your old home gives you the advantage of having a permanent residence established instead of hoping a buyer will follow through with a purchase. This step is critical for out of town or moves that are time-sensitive.
Rushing into a temporary living situation can lead to more expenses and headaches than if you simply bought a home. Buying a home while selling also gives you the opportunity to take your time and search for the best option for your lifestyle.
How to Buy a House While Selling Your Own
If you’re convinced buying a house before selling is best for you, it’s important to make a plan to keep the process as smooth as possible. Here are the steps to buying a home before you sell your current one.
Step 1: Research the Market
It’s important to do your research on the market where you want to buy and where you want to sell. Doing so gives you a deeper understanding of what to expect from purchase offers.
If the average days on market is fairly short, you might consider waiting until you’ve located a home you want before placing your own home up for sale. This gives you time to look for a new home without stressing about moving.
If the average days on market is long, you can go ahead and ask your realtor to start the sales process while you look for a home. As a veteran home buyer, you’ll have the insight to choose the best home with the best features for your family without rushing.
Step 2: Make an Offer
The next step to buying a home before selling is to make an offer. Once you find your ideal home, ask your realtor to complete the purchase agreement with the contingency of an extended closing.
The extended closing is a major advantage in delaying and lowering the chances of you having to make two mortgage payments. Keep in mind that closing on your dream home isn’t guaranteed until after closing.
There are many reasons the purchase of your new home could fall through. If you want to be sure you have your living arrangements settled, the safest bet is to close on the new home first.
In this case, you won’t need to make an offer with an extended closing. You might actually want to request a sooner closing date instead.
Step 3: Prepare Your Finances
There are many ways to make paying the down payment on a new home seamless. One way is using the equity in your old home to make the payment.
You can do this using a home equity line of credit (HELOC). The HELOC is tricky because lenders can demand repayment within just 3 years.
Choose this option only if you are sure you could meet this demand is the situation arises. The second option to paying for the down payment on your new home is using savings.
Some people choose to borrow against a retirement account to put up a down payment on a home. There are penalties to doing this, but they are usually less than the standard early withdrawal penalty depending on the type of retirement account you own.
Bridge loans are also an available option. These are short term loans that allow you to use the equity in your home as collateral to borrow money.
The payments on these loans are typically high which could create a financial setback if you get stuck paying for your old home, new home and loan payment at the same time. Speak with a financial advisor to find out which plan works best for you.
Step 4: Close on the New Home
Once you have your finances in place and your offer has been accepted, its time to prepare for closing. The closing process requires that you maintain good credit and avoid making any new major purchases.
Showing cash reserves is easy once you’ve decided how you plan to make the down payment. Lucky sellers will have the opportunity to schedule a buying and closing on the same day.
Talk to your realtor about your opportunity to double close if you have an existing offer on your home. Closings are delayed for many reasons so this option won’t be something you can rely on completely.
Taking the Leap
No matter what approach you take buying a home can be stressful. This overview of how to buy a house while selling your own gives you one strategy to minimizes the risk.
Nothing is guaranteed with buying or selling a home. Have a backup plan for what you want to happen if either closing falls through.
Renting your home or finding a home to rent is one of the best backup housing options that won’t require getting banks involved. The additional income means not having to worry about making two mortgage payments every month.
For more information on selling your home fast, check our blog for updates.
