In a buyer’s market, the inventory of homes for sale can be astounding. Deciding on a home to buy is difficult enough, but what happens when you have one to sell beforehand? Many times, especially in a soft real estate market, a buyer may get into a situation where they find a new house before their current house sells. Acting as a buyer and a seller in separate transactions can be tricky business, especially if you need the equity from your current home to pay for the new home. Luckily there are some best practices that can help show you how to buy a house before your other house sells.
Consider a Bridge or Home Equity Loan. There are many financing options available when it comes to home buying, and bridge loans can be an easy way to finance a new home sale before your existing home closes. A bridge loan is one that is used to provide funds needed for a short period until another source of funds becomes available. Sometimes called a “swing” loan, it allows a homebuyer who needs the equity in his old home to pay for the new one to close on the new home purchase before closing on the old home sale. The interest rates on these loans are typically high. However, because the loan will be paid off in a short period of time, this should not be a huge problem for buyers. In a similar vein, you might consider a home equity loan on the house you already own. This is a bit riskier, but provides the same benefits.
Rent your current home. If you can find short-term or month-to-month tenants who are willing to rent your current home until it sells, you can avoid having to worry about the house sitting vacant while you are moving into the new home. This can help you avoid having to winterize or de-winterize the property and stage the home for showings. You will also be able to apply the rental income to your existing mortgage on the house, to alleviate the financial burden of paying two mortgages.
Work with the Seller. In a soft market where buyers are limited, sellers are often willing to work with the buyer on a purchase agreement that works for both parties. If you’ve already found the house you want to buy, but haven’t yet sold your existing home, it may be possible that the seller will allow you to make a small down payment with a signed contract that permits you to wait to make the purchase until your old house sells.
Should I Buy a New House Before I Sell the Old One?
Buying a new house before your current house sells is not an ideal situation, but there ways to get through it that can alleviate the risk and financial burden. If you’ve considered the options above and are still unable to find a solution that works, an alternative and less attractive choice may be to hold off on buying a new home until your existing home is the final stages of closing. As disappointing as this can be for sellers who are anxious to move, it is a more desirable situation than being stuck with two mortgages and no remaining credit for other daily or emergency needs.