Buy and Sell a Home at the Same Time

You’ve found your dream home, but now you need to sell your current one. Unfortunately, it’s nearly impossible to close on both houses on the same day or month, so you’ll need to decide which to do first: sell your current home or buy your next home. Most people will need to sell first. Protect yourself by including relevant contingencies in your contracts and prepare to find a place to stay as you wait to buy your new home.

Steps

Deciding to Sell or Buy First

1. Check if you qualify for a second mortgage. Talk to your lender about getting preapproved for a mortgage on your new home. Your lender will look at your finances and tell you whether you can carry an additional mortgage.
   • Chances are, you won’t qualify to have two mortgages at once because your finances aren’t strong enough. Because of this, you’ll need to sell your home before you buy your next one.
   • If you can carry a second mortgage, then it’s up to you whether to sell your current home first or buy you second home first. Talk to your real estate agent and analyze the markets.
2. Hire a real estate agent. Your agent will help you assess whether you are selling into a hot or cold real estate market. The agent can also analyze the market you plan to buy into. You can find a real estate agent by looking in your phone book or talking to someone who has bought a home recently.
   • You might need to get a second agent, especially if you’re buying into a different city. You want someone with deep knowledge about local market conditions.
3. Analyze the markets. You can’t develop a game plan until you understand both the market where you live and the market you hope to buy into. Talk to your agent but also do some independent research. Go onto websites such as Zillow and Trulia. Look at how long houses have been on the market and how often the price had to be lowered before the property sold.
   • In a hot market, homes shouldn’t be on the market more than 30 days, and they should fetch close to their asking price.
   • In a colder market, homes can stay unsold for months, even when the price is lowered.

Developing Your Strategy

1. Pay a premium when the markets are hot. Things can move quickly when you’re buying into a hot market and selling into a hot market at the same time. You’ll have no trouble selling your home, but you’ll have to pay top dollar so you aren’t homeless for an extended length of time.
2. Wait to buy when the markets are cold. When you’re buying into a cold market, you’ll have your pick of homes. You can choose to be picky and aggressive on price. However, it’ll be hard to sell your own home unless you’re willing to accept a low price. If you can’t get a second mortgage, you’re probably best off waiting to buy.
   • Speed up the sale of your current home by pricing it fairly. Get an appraisal so that you aren’t asking for too much.
3. Be aggressive when selling into a hot market and buying into a cold market. This is probably the best situation. You’ll have your pick of homes at competitive prices and can quickly offload your current home. You’ll probably only need temporary housing for a very short time.
4. Sit tight if selling into a cold market and buying into a hot market. This is the worst combination to have. You’re definitely stuck with selling your current home first unless you can get a second mortgage. Even then, you must consider whether you want to carry two mortgages for a long time. You might not be able to sell your home for several months or longer.

Protecting Yourself with Contingency Clauses

1. Negotiate a contingency that your home must sell first. If you’re buying into a hot real estate market, include a contingency in your purchase and sale agreement to protect you. This contingency will state that you won’t purchase your new home unless your current one sells. If that contingency isn’t met, then you don’t have to go through on the home purchase.
   • Realize that a seller can turn you down. If their housing market is hot, they don’t need to wait around for you to sell your home. They may ask you to remove your contingency or turn down your offer altogether.
   • However, this contingency can work if you’re buying into a cold market.
2. Ask for a contingency that you must buy your home first. You might be afraid of selling before you buy and being left homeless. In this situation, you can include a contingency that you must close on your next home before the sale of your current home goes through.
   • Many potential buyers might balk at this. Basically, you’re asking them to put their lives on hold until you find your next home.
   • However, this contingency might work if you’re selling into a hot market. Because the housing supply is limited, buyers might feel they have no choice but to wait for you.
3. Include a rent-back provision. If you’re selling into a hot market, you might not be able to close on a new home before you sell your current one. In this situation, you can include a “rent-back” provision. This provisions gives you the right to stay in the house for 60-90 days and pay rent after you sell.
   • Lenders decide the length of the rent-back provision. Anything longer than 90 days and the property will be considered an investment property.
   • The buyers will decide how much rent to charge you, and they’ll base it on either the mortgage payment or local market rents.
4. Add a contingency to your mortgage. You probably don’t qualify to carry two mortgages at once. If not, your lender will add a contingency to your mortgage. You’ll only get access to the loan funds once you close on the sale of your current home.

Planning Properly

1. Prepare for a stressful experience. Accept at the outset that this is a stressful process. It’s worrisome enough to sell a home or buy a home. Chances are you can’t time everything just right, which is why you have built contingencies into your contracts.
   • Handle the stress through exercise, eating well, and getting enough sleep at night.
2. Lean on your real estate agent. This is a do-it-yourself culture, and many people want to save a little money by cutting out professionals. Don’t. Meet early and often with your real estate agent, and let them stay on top of deadlines and paperwork requirements. Your agent is also an experienced negotiator, so trust them to sell a home in a cold market (or buy your next home in a hot one).
3. Search for temporary housing. You might want to avoid this option, but most people must sell their home first before they can buy their second. Get back-up housing to relieve stress.
   • Talk to family and friends. Do they have space where you can stay? Is it reasonably close to your work?
   • You might need two places to stay. One parent can rent an apartment close to work while the children and the other parent move in with family during the summer. Try to be flexible.
   • Also research storage options. You probably can’t take all of your things with you to your temporary shelter.
4. Prepare to be a landlord. If you manage to buy your second home before selling your first, you might as well rent out your home to make money. This might be the only option if you’re trying to sell into a cold market.
   • Talk to current landlords so that you know what you’re getting into. Ask how they find good tenants, and ask to see a sample of their lease agreement.
   • Also consult with a landlord-tenant attorney. You must follow many laws as a landlord, so you’ll need expert legal advice.
5. Save money. If you decide to carry two mortgages at once, you’ll need money to pay them. Similarly, if you need to move into temporary shelter, then you’ll need to pay for it. Save as much money as you can starting as soon as possible. If necessary, delay the home buying process until you have enough of a cushion.
6. Get a bridge loan, if necessary. Let’s say you decide to buy first. You’ll need a loan to make your down payment on your second home. Ask friends and family first, and make the loan official by drafting a promissory note. However, you might need to ask your lender for a bridge loan.
   • Bridge loans are expensive and hard to get. Basically, you need to convince your lender you can carry two mortgages indefinitely.

Sources and Citations

See also

• Pay Less Real Estate Commission
• Sell Your House Fast
• Hold an Estate Sale
• Prepare for a Closing
• Sell Your House Using a Lease Option
• List for Sale by Owner Using MLS Listing
• Sell a Mobile Home
• Do Your Own Real Estate Closing
• Get Your House Appraised
• Sell Your Own House

Read more ...