HOW TO BUY A HOUSE WHILE SELLING
BRANDEN GRIFFITH
June 12, 2024
If you are looking to purchase a new house while still needing to sell your current one, you have several options to make the transition smoother. There are many ways to time this transition, as well as many ways to finance the purchase before closing on your current home.
Careful planning and research into these methods can help you time and coordinate the buy and sell process strategically.
MAKE A CONTINGENT OFFER
A contingent offer allows you to make an offer that is contingent on the sale of your current home. This means you can make an offer on a new home, but do not have to complete the purchase if your home does not sell by an agreed-upon date. The contingent offer removes some risk, allowing you to shop for a new home before your current one has sold.
Pros: Reduces risk of owning two homes and paying two mortgages.
Cons: Makes your offer less competitive, puts you on a limited timeline to get your home sold, Seller may continue to look for other buyers for their home while you try to sell yours
BRIDGE LOAN
A bridge loan provides short-term financing that bridges the gap between you closing on a new home and the sale of your current home. This type of loan allows you to purchase a new home even if your current home has not sold yet. The bridge loan is repaid when your current home is sold. This option allows you to purchase a new home without having to coordinate closing dates.
Pros: Buy before you sell without coordinating closing dates, make non-contingent offers that are more competitive, avoid temporary housing or moving twice.
Cons: Higher interest rates and fees than traditional financing, requires strong credit and equity to qualify, you may carry two mortgage payments plus the loan if your home doesn’t sell quickly
HOME EQUITY LINE OF CREDIT
A HELOC uses the available equity in your current home as collateral for a revolving line of credit. You can draw from the HELOC to use as down payment funds on the new home purchase. When your current home sells, the HELOC is repaid. This allows you to leverage the equity in your current home to cover the down payment on a new home before the sale is finalized.
Pros: Typically lower interest rates than a bridge loan, only pay interest on what you draw, gives you down payment flexibility without waiting for your sale
Cons: Must be opened before your home is listed (most lenders won’t approve a HELOC on a home that’s actively for sale), adds a monthly payment on top of your existing mortgage, reduces your equity cushion if your home sells for less than expected
RENT-BACK AGREEMENT
Some buyers will allow the seller to rent back the home after closing for a designated period of time. This would allow you time to occupy your current home until you are able to find your next home, though these agreements can only extend for a maximum of 90 days.
Pros: Sell first and lock in your proceeds before buying, avoid the pressure of rushed timing, no double mortgage payments
Cons: Typically limited to a maximum of 90 days, which may not be enough time to find and close on a new home, you may pay rent to the new owner (often at their mortgage cost or market rate), you’re a tenant in your former home with the risks and restrictions that come with that
"PRO TIP: Don’t assume you need to sell first! There are financing options that let you buy before selling, let’s explore what works best for you. "
— BRANDEN GRIFFITH
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