Buying a home can be one of life’s biggest undertakings. There’s home research to do, negotiations to ace, documents to scrutinize, paperwork, deadlines and regulations to learn to navigate. If you need to sell an existing home to buy a new home with, it only makes things much more complicated. The timing can be hard to work out.
What makes the timing difficult?
Selling your house first before you begin looking for a new one makes life easier all around. Things can begin to get complicated, though, if you find your dream home at a great price, but don’t yet have a buyer for your existing home. You’ll want to look for ways to buy the home first, leaving the selling for later.
A buy first-sell later plan can be particularly complicated, because it means that you won’t have money from the sale of your home to finance your new home with. For a short time, you will also have two mortgage payments to make, (assuming that you could even qualify for such an arrangement). Servicing two mortgages can be particularly difficult, especially if it turns out that your house doesn’t fetch as much as you hoped. You’ll need to find a way to make up for the shortfall then, or continue to service two mortgage payments indefinitely.
How do you line up buying and selling homes at the same time? It’s important to understand your options, and, if possible, to accept that you may need to rearrange your priorities.
If you only need to buy a little time
If you manage to find a buyer for your home, but the buyer is taking his time actually paying, you only need to close the deal. The closing contract alone can help you prove to the lender funding the purchase of your new home that your finances won’t be strained for much longer. The closing contract should help you prove that your first mortgage will not drag on for long. This should help the lender prove your mortgage. You can then close the deal on you the new home that you’re buying.
You could put in a contingency clause
If you can find a seller who is accommodating enough, you may be able to write up a contingency contract. Such a contract with state that your ability to buy was contingent upon your ability to sell your existing house. Such a contract would make the seller wait for you until you found a buyer.
Consider finding bridge financing
Bridge financing is funding designed specifically for those who need to buy and sell homes at the same time. Such financing provides homeowners with a short-term loan for down payment on a new home before an existing home sells. A bridge loan is secured in the value of the existing home owned. When the home sells, the loan is automatically repaid. You also get to make something back — the interest that you pay usually counts as a qualifying cost when you file your taxes.
It’s important to remember, though, that it may be far easier to obtain a loan off a retirement fund or off other investments.
The current state of the market may dictate which way you go
A study by the Council of Mortgage Lenders in 2011 found that 4 out of 10 buyers bought homes with cash; they did not need to borrow. According to carsons.co.uk, a reputed estate and letting agent, the proportion of cash-ready buyers tends to rise to even higher levels in certain parts of the country. Similar findings are in this BBC report. London, for instance, is well known to be a cash buyer’s market — 8 out of 10 buyers pay cash. Newly tightened lending rules are one part of the reason for the move towards a preference for cash.
Depending on where you live, then, you may need it to tweak your plan to sell and buy at the same time. If you’re dealing with a seller’s market that is used to the speed and convenience of cash, you may have no choice but to sell first, and then look for new home cash in hand.
Selling a home first and buying later is a good idea, too, because it takes pressure off you on both deals. You get to sell when you find a good buyer, and you get greater freedom for negotiation when you buy, because you have cash to pay. All you need to do is to find a home to live in on short-term rent when you sell.
Hollie Brennan works in secured personal finance and has a good understanding of how challenging it can be to buy and sell at the same time plus other relevant problems. She likes to share her insights and tips on how to manage the finances when buying and selling property and contributes online for a variety of relevant websites.
