In an ideal situation, the sale of your old home would align perfectly with the purchase of your new home. But real estate transactions are often a little messier, and the timing won’t necessarily line up perfectly. You might end up selling your existing home — and having to vacate it — before you find a new one, leaving you to undergo the expense plus hassle associated with temporary housing.
A desire to sidestep that sort of scenario might leave you to wonder: Should I buy a home first, before selling my old one? Let’s explore the pros and cons, plus walk a person through the complex choreography involved.
Buying a house before selling the old house
While buying a house before marketing your aged one isn’t ideal, it is possible. Here are usually some of the advantages and disadvantages that come with this scenario.
Advantages of purchasing a house before promoting
- You’ve a place to go : If your old home is snapped upward fast , you will not be left without a roof over your own head. Moving is never fun, but being able to move into your new house whenever you want — or even gradually moving items as opposed to doing it all at once — can help ease the burden.
- Avoid expenses : With a brand new home ready and waiting, you won’t need to worry about the costs of interim or storing your furniture — which could run into many thousands of dollars as the months roll by. Or pay moving costs twice.
- Can move fast if you see a place you like: Although the real property market will be slowing down from its red-hot highs associated with the last two years, inventory is still low plus desirable properties go within days of listing. If you spot your dream home, why wait? It may well be gone in a month or two.
- Don’t have to live in a home while showing it : Keeping your existing house clean for open houses and private showings can be a headache, especially if you have pets or young children. Not to mention the particular annoyance of disrupted schedules and needing to make yourself scarce.
Drawbacks associated with buying a home before offering
- How in order to afford this: Where’s the purchase money to come from? Most people use the proceeds from their existing home to buy the particular new 1 — or even some of the profit for the down payment, at least. Unless you’ve tons of savings or easily liquidated investments, if you buy a home before selling yours, you’ll be concerned regarding how to finance it — second mortgage, anyone?
- Carrying two mortgages : Let’s say you do get approved for the second mortgage . Two monthly home payments mount up, taking a big bite out of a budget, even with regard to just a short while. And there are other expenses associated with running two households — utilities bills and property taxes , to name a couple.
- Sellers will be skeptical : Buying before selling an existing home adds a layer of uncertainty about your own bid that some homeowners may prefer to avoid. The sellers of the particular home you’re purchasing may be concerned about your ability to afford it — or that will you’ll back out or even delay things if a person run into hassles unloading your current place.
How do you buy a house prior to selling?
Purchasing a house before marketing an current one is the delicate dance. Here are some potential steps to take.
See if you qualify for a second home loan
Financing a second home could be a struggle, depending on your scenario: You’ll likely need a new mortgage and a down payment of at least 3 to 20 percent. Shop around regarding lenders, see what your options are, and consider seeking preapproval for a mortgage to help determine how big a loan you qualify for.
Put a sales contingency in your contract
With a sales contingency — a clause in the sale and purchase agreement a person sign once your offer’s accepted — you indicate that the purchase associated with your brand new home is usually contingent upon the sale for your aged one. Sales contingencies are fairly common, though the particular seller will not love it, especially if they’re looking intended for a simple, streamlined transaction.
Get the bridge loan
A bridge loan is definitely a short-term loan that’s designed in order to cover the gap between purchasing a new home plus selling your own old a single until you’ve secured permanent financing. “With a bridge loan in hand, you can make a house purchase offer that’s not contingent on selling your current house, ” says Sean Simon, mortgage originator in Planet Home Lending. “That will appeal to home sellers who don’t want their residential sale to stall while they wait around for the particular buyer’s home to sell. ”
One caveat: These loans generally come with short terms, and interest rates may be slightly higher than what you’d see with a first mortgage. They won’t have the tax-deductible advantages of mortgages, either.
Get a HELOC/home equity loan
As an alternative to the bridge mortgage, you could get a HELOC or home collateral loan on your old house, and then use those funds to get a deposit. Just keep in mind that you will need to repay your HELOC or home equity loan in addition to your own old mortgage, assuming your old house sells.
Dig into savings
Tapping into your own retirement accounts is another option, though doing so is not necessarily advisable, as you may miss out on years of investment growth.
If your employer offers the choice, you could get a mortgage of half of your vested balance, up to $50, 000, from your 401(k) in order to help with the cost associated with your new home. These loans generally come with rates of interest of around one to two percentage points above the prime rate.
While you won’t need in order to pay the 10 percent early withdrawal penalty that usually applies with 401(k) withdrawals , you’ll have to repay your own loan along with interest inside five years, and a person won’t become able to contribute to your 401(k) until it’s paid off.
Getting a 401(k) hardship withdrawal might be another option to avoid the particular 10 percent early withdrawal penalty (if you are under age 59. 5), but if you aren’t authorized for this, you’ll incur the charges. And it’s limited to $10, 000 anyway. It might be easier to withdraw such funds from your own traditional IRA. In both cases, you can’t have bought or even sold a primary residence in the last two many years.
A Roth IRA drawback may be the better option, though you’re still dipping in to your retirement savings. Your own contributions to a Roth IRA can end up being withdrawn tax-free and penalty-free at any time, although you will incur a penalty if a person withdraw any gains earlier (and are usually under age group 59½).
Ask for a delayed closing
If you’re getting close to promoting your house, you might think about asking the sellers of your new home for a delayed closing. Putting off the shutting slightly might help much better align the particular sale associated with your old home with the purchase of the new one particular. In exchange, you could provide to put up more earnest cash or spend some additional closing expenses , just to show your good faith.
Alternatives to buying a home just before selling yours
Buying a home before offering yours sounds too tricky? Here are a few alternatives to consider.
Rent out older home
Don’t sweat marketing: Try renting your outdated home instead of putting it up for sale outright. The rental income from your previous home can be used to offset the cost of your brand new one. Consider working with the property management service in order to screen prospective tenants in case you go this route. You could offer a rent-to-own contract, too.
Sell to a real estate brokerage
Some real estate brokerages , such because Orchard or Homelight, offer a cash-for-homes service somewhat like iBuyers . Basically, they’ll guarantee to purchase your house, sometimes even fronting you the funds for any new home. Of course, if you do buy the property listed in their network, all the particular better.
Even if a person don’t opt for this particular route, at the very least engage a savvy real estate agent — one whose specialty can be selling homes fast or is adept at representing both buyers and retailers (since you are both! ).
Sell home first
You can wait until you sell your home before purchasing another . While performing so may result within you losing out on a hot home, you could also save yourself the headache of trying to secure financing and making payments upon a new loan in addition to a mortgage on the existing house. There’s still an arrangement, called back-to-back escrow , that allows you to quickly close on both transactions.
“Strongly consider selling your first home before buying a second home, ” says Christa Kenin, attorney and real estate expert with Douglas Elliman. “Unless you are prepared to carry two houses, sell your first home at the discount, or even you don’t need money from your own first house to purchase your second home, this makes the most sense through a financial standpoint. ”