How to Buy and Sell a Home

Why You Shouldn’t Buy

Before You Sell

You might be so focused on getting a new home that you prioritize buying one before selling your current home. If this means you’ll pile a second mortgage on your back, you definitely should not buy before you sell.

Sure, buying a new home before selling your current home would make it easier to move. You wouldn’t have to worry about where to store your stuff or where to stay.

But an easier move isn’t worth the risk and potential complications of having dual mortgages:

• Qualifying for a new mortgage will be more difficult, if not impossible, if you’re still tied to your current home mortgage—or if you’re relying on the sale of your current home for the down payment on your new one.
• While paying two mortgages for a couple of months doesn’t seem like a big deal in the grand scheme of things, there’s no guarantee your home will sell that quickly. Even in a seller’s market, a home sale takes time—and your home could sit on the market for months . . . or even a year! That’s a quick way to drain your emergency fund for something that isn’t a real emergency.
• With two homes on your hands and no savings in the bank, it’s just a matter of time before Murphy enters the scene, and he’ll bring a busted water heater or leaky roof with him that’ll require immediate attention—and money. Whatever can go wrong will, turning your dream home into a total nightmare.

One traditional trick of buying and selling a home at the same time is the contract contingency. When you make an offer on your new home, You can make the purchase contingent (or dependent) on the sale of your current home.

While the contingency protects you from having to pay on two mortgages, it can be a risky play in a strong seller’s market. With sellers often receiving multiple bids for their homes, an offer with too many contingencies can easily knock you out of the running—and an unsold home is just about as big as a contingency gets. Your real estate agent can advise you on whether or not a contract contingency is a good idea in your case. A lot will depend on your buying and selling timeline—but more on that later.

One more note: Don’t be fooled by options your lender may offer to “help” you cover the financial challenges of buying and selling a home at the same time. These are loans that simply multiply your risks:

Bridge loan

A bridge loan allows you to tap into the equity of your current home to pay the down payment on your new home. It functions as a short-term loan that is to be repaid quickly. Here’s the catch: Payments are much larger than a long-term loan. And if it comes to late payments, the penalties and fees are much larger too. Debt always creates risk. And the risk of debt that’s tied to the unpredictable timing of a home sale creates a huge financial burden.

HELOC

This loan also gives you access to your home’s equity so you can use it on the down payment of your next home. But the HELOC (Home Equity Line of Credit) is dangerous because it usually comes with call provisions. This means your lender can demand you repay the entire loan in full—within a one- or three-year cycle! That could put you in a position where you’ll scramble to get a loan to avoid foreclosure. Bad plan.

Can I Sell and Buy on the Same Day?

With the help and coordination of a top-notch real estate pro, you might be able to sell your current home and close on your next home on the same day. However, keep in mind that a same-day closing will require perfect timing on three different timelines—yours, your buyer’s, and your seller’s.

Realistically, closings are often delayed for lots of reasons—maybe your buyer has difficulty getting a mortgage or your home inspector finds issues that need to be fixed before you move into your new home.

So don’t rely on selling and buying on the same day—have a plan B to reduce the gap between closings as much as possible.

One option is a rent-back agreement. As a seller in the current market, you have the power to call some shots that will make timing your move easier. With a rent-back agreement, the buyer of your home agrees to allow you to stay in your home for a period of time (60 to 90 days) after the sale is final. In exchange, you allow for a lower selling price or rent paid to the buyers. This can relieve some of the pressure of finding a temporary place to stay and give you additional time to house hunt.

This might sound like a big ask, but buyers in a competitive market are often willing to be flexible with sellers if it means their offer is the one that gets accepted.

Buying and selling: the one exception

If you’ve reached Baby Step 7 and are living and giving like no one else, by all means, pay cash for that new home and worry about selling your other one later. Not sure if you’re there yet? Ask yourself these questions:

• Are you debt-free?
• Do you have 3–6 months of expenses in your emergency fund?
• Is 15% of your take-home pay going toward retirement?
• If you have kids, are you contributing toward their college fund?
• Is your current home paid off?
• Do you have enough cash to put 100% down on the new house?

If you can’t say yes to all of the above, then hold your home-buying horses. No home is worth putting your financial security at risk. For the rest of us, the safest and smartest plan is to sell before you buy.

Here are five steps that will help you sell your home before buying a new one.

1. Plan Your Schedule for Selling and Buying a Home

First, admit that managing the two massive tasks of buying a new home and selling your old home is no walk in the park. The great news is that you don’t have to deal with the stress of doing it on your own!

Consult with an experienced real estate agent on the front-end who can help you understand the challenges and benefits of buying and selling a home in your current market. You and your agent can start with a discussion on current real estate trends. Then you’ll have a grasp on how much your home will sell for and how much you can expect to pay for your new home.

With a clear understanding of your real estate market and the professional advice of your agent, you’re ready to make a plan. Start by answering these questions with your real estate agent:

• What’s my ideal timeline? At what point in my home-selling process should I begin looking for my new home? How long should I expect my home-buying process to take?

• How much house can I afford? Based on the expected sale of my home, how much of a down payment can I make on the new one? Can I pay in cash, or do I need to plan ahead for financing?
• Can I make the transition at once? Or do I need to plan for a gap between closing on the sale of my current house and my move-in date for my new one?

2. Prepare Your Home for the Market

Now you’re ready to put your plan into action! Follow the steps below to get your house ready to list.

Interview real estate agents

Ideally, you’re already working with a top-notch agent, but if you find that your relationship with your agent is falling short, now is the time to find a pro you can trust. You know, one who inspires you with confidence and has a proven track record for getting homes sold! Don’t be afraid to ask important questions, like whether the agent specializes in your area of town and how many properties they’ve sold in the past year. A stellar agent closes at least 40 transactions per year.

Hire a home inspector

Have a professional inspect your home for anything that you may need to fix before listing your home. Better to find out what the issues are now than to wait for a buyer’s inspector to uncover them for you—throwing a wrench in your timeline.

Set the stage

Change your mind about your home—it’s no longer yours! Create a warm and inviting atmosphere so prospective buyers can picture themselves living there. How? Declutter and get rid of things you don’t need. Consider hiring a professional cleaning service so everything is spotless and smells nice. And don’t forget curb appeal—you’ll need picture-perfect photos to get your home noticed online.

Price it right

Buyers will pass on a home that’s priced too high, without even taking an up-close look. So what’s the secret to perfect pricing? Start by taking the emotion out of the equation. No matter how much you think your home is worth or what you owe on your mortgage, it’s the market that matters. A real estate agent can run a comparative market analysis to show you how much homes like yours are selling for in your area.

3. Sell Your Home

Once your home is ready for the market, your agent can get it listed and scheduled for showings. Now you’re ready to sell your house! With a well-prepared home and this hot market, plenty of offers will head your way. Your agent can help you comb through the offers and negotiate a contract that benefits you and your timeline.

At this point, you might be itching to make a move on your own new home, but stay focused on meeting the contingency deadlines of your contract and closing date. Any delays could complicate your transition to a new home.

4. Fill the Gap Between Selling and Buying

By now, you should have a clearer idea of how long it will be between closing the sale of your current home and when you can move into your new one. If you didn’t have any luck negotiating enough wiggle room in the sale of your home, you may need to find a temporary place to stay and store your stuff (which will probably include budgeting for rent).

If that’s the case, blast out a massive social media message, email, etc., to alert everyone you know that you’re looking for a rental. Maybe you can strike a discount and avoid being forced into a rigid lease term. This way, you can be free to move as soon as you land a new home.

5. Buy Your Next Home

Congrats—you sold your old home! Now you’re ready to follow some steps on how to buy a house. Here’s where to start:

• Determine your down payment either from your savings, the profit on the sale of your home, or both.
• Get pre-approved for a mortgage: Get your closing cash lined up and financing pre-approved to avoid unexpected surprises that could delay your tight timeline.
• Find a homebuyer’s real estate agent, or work with the same agent you sold your home with.

From there the steps are pretty straightforward:

• Go house hunting.
• Submit an offer.
• Get a home inspection.
• Close on your house!

With a little patience, a lot of hard work, and an experienced real estate agent as your guide, you’ll be placing that SOLD sign in your yard in no time. 

See Original Article at: https://www.daveramsey.com/blog/sell-before-buying