For most home owners, deciding to sell your home is usually determined by the need for a new home. Whether it’s because your family is growing or you have a new job, or because you can afford more, when you sell you’ll need a new place to call home.
For many of us, it is easy to begin our search for a new home before we’ve even sold the old one. Don’t. Always sell your existing home before you purchase the next. There are always exceptions to the rule, but by selling your home first, you save yourself plenty of headaches and avoid financial difficulties.
Why Sell First?
Can you really afford to carry two mortgages. For most of us, it’s not realistic. Not to mention, most lenders will require that you sell your existing home before they will extend you the loan on the new home. Once you’ve secured the sale of your home, you’ll know how much you have for the next down payment, how much you’re lender is willing to loan you, etc. Financially it makes sense.
The fear of selling your home before you have found a new home, can be unsettling. But in most cases you can write your sales contract with a later possession date or even lease your home from the new buyer for a period of time. This will free you up to find the right place to buy.
Buying Your Next Home Before You Sell
Although our best advice is to sell your home first, many home owners find themselves trying to juggle a sale and purchase at the same time. If you are in this situation, here are some tips on how to successfully manage a sale and purchase at the same time.
1. Find the Right Professional to Represent You
When you are in the position of buying before you sell, it is extremely important that you have someone on your side, helping you through both transactions. You should find a professional who is experienced in dealing with dual transactions, writing contract contingencies, and working with lenders. The Realtor you choose will have a major impact on how smoothly your transactions are handled.
2. Prepare Your Home For Sale
Before you even begin to search for that next home, make sure that your home is ready to be put on the market. Any repairs that need to be made should be completed. If you need to paint, do it. If you are going to be successful in juggling both a sale and a purchase you will have to be ready to list your house today.
3. Know the Value of Your Existing Home
In order to have a good idea of what your home will sell for, you need to have your Realtor conduct a Comparative Market Analysis. This will give you an estimated value. For a more exacting figure, think about having your home appraised. Once you know about how much your home will sell for, you will have an idea of how much you can put down on the new home.
4. Get Pre-Approved
Using the numbers estimated in your CMA or appraisal, approach your lender and have them pre-approve you based on the sale of your home. If you are able to get financing without selling your home, you will have more flexibility, but in most cases, your loan will be contingent on the sale of your existing home. In some instances, you may be able to secure interim financing, or bridge loans, in order to buy the new home. This “bridge” loan is usually made against the equity in your current home and would be repaid to the lender upon the sale of your existing home. Once you have secured your financing, you can begin your home search.
5. Structure Your Offer to Buy
Once you’ve found the home you wish to buy, it’s time to make an offer. When you make your offer your real estate professional will help you structure the contract to better suit your situation. You should negotiate a long escrow period, or make the purchase contingent on the sale of your current home. This contingency may make your offer less attractive to the sellers, but if it is a sound offer, they may be willing to accept the terms. Your Realtor will be well versed in handling these negotiations as well as the structure of the contract.
6. Focus on Selling Your Home
Once you have a contract in place, it’s time to get moving on the sale of your home. Sign the listing agreement with your Realtor. This will free them up to list the property with their local MLS, put the property on their website and begin to market the property. Since you’ve already spent the time and energy getting the home ready to sell, you should be able to hold open houses right away. Also, if your Realtor is savvy, they have already begun to line up potential buyers even before the home goes on the market.
7. Accepting the Right Offer
Because you have a contract on a new home, you need to be careful about accepting offers on your existing home. If you receive an offer which you want to accept, verify the buyer’s creditworthiness, avoid any and all contingencies which cannot easily be cleared, and try to set a quick closing date. By accepting a contract which has few hurdles to cross, you better you chances of quickly closing on both contracts and moving into your new home.
Once you have both contracts in place, try to set the closing schedule to coincide with one another. This way you will not have to find interim housing or lease back your existing home in order to have a place to live. If you were unable to sell your existing home, but still have the ability to purchase the new home, go ahead and close on that contract. Consider lowering the price of your old home or take it off the market until the following selling season when the market is stronger. Your Realtor will be instrumental in providing guidance through the closing and should have some helpful advice on how to proceed on the sale of your old home.