Selling your home and buying another:
Being a move-up buyer can be tough in today’s market. Although deals are closing rapidly, there’s no guarantee that your new dream home will close at the same time as your old dream home. Selling and buying at the same time is a delicate dance, but it is doable. Buying and selling a home at the same time is a daunting task. Add a slowing housing market to the equation and the experience has nightmare potential. Your dream home may be more affordable, but unloading your current one may be harder.
In a perfect world, you would coordinate the closings for both properties on the same day, providing a seamless transition from your old home to the new one. But the real world tends to be messier than that. While taking out another mortgage remains an option, shouldering two mortgages is harder now than it used to be.
Not only is it harder to get approved for a second mortgage, he says, but your home may take six or more months to sell. Here are some strategies to help ease the transition:
Sell first, and then buy.
This is perhaps the safest plan, but it calls for multiple moves. In this scenario, you list your home and complete the transaction before purchasing another home. When you sell your home, you put the bulk of your belongings in storage and live in a temporary rental or, if possible, enter into a rent-back deal with your home’s new owner. The advantage of this method is that you know exactly how much you can spend on a new home, and you don’t have to worry about temporary financing. Also, without another home waiting in the wings, you’ll be less tempted to drop the price or to take the first offer that is below the asking price. The disadvantage is that it is a disruptive experience, and you could be displaced for a while if you are home-shopping for a long time.
The fear of selling your home before you’ve purchased a new one is obvious: You’re homeless. But experts agree that this scenario is more attractive than the alternative, which is to buy a new home before your current one has sold (more on that below). The advantage is that you have the cash to buy your new house. In the meantime, however, you might be considering moving into your moving boxes. Some better alternatives:
1. Rent your house:-
In many short-term situations, the new homeowners will allow you to rent back your old home provided you cover their costs — particularly if you’ve already signed a contract to purchase another home. The process: Draw up a contract that includes a provision allowing you to stay put for a set period of time — say, 30 days. In exchange, you agree to pay the price of the new mortgage, property taxes, utilities and homeowners insurance. Keep in mind, this may be a whole lot more expensive than what you’re used to. Assuming your home has appreciated nicely in value, the new owner’s expenses are probably much higher than yours were.
2. Move in with loved ones:-
If you need more than a month — which is likely in today’s market — you might need to move out of your old home and in with parents, a sibling or a friend. If that’s not an option, consider a temporary apartment or the local Best Western. If you’re forced to go this route, remember you’ll have to pay movers twice and put your stuff into storage, all of which can cost a pretty penny. On the positive side, chances are your mom will be thrilled to have you back home.
Buy first, and then sell.
This strategy minimizes disruption. You can move into your new place at your leisure and then take time to prepare your home for sale. The major disadvantage is that, depending on how fast your old home sells, you could be shouldering the burden of two mortgages for some time. You are also responsible for maintenance and security on the vacant home. This scenario works best if your first home is already paid off.
A variation of this plan is to buy a new home with the plan to rent out the old one for a year. This buys you some time with money coming in, but being a landlord comes with its own stresses and responsibilities. You may also need to repair or renovate the home after it has served as a rental.No one relishes the idea of owning two primary residences and doubling up on costs. In fact, it even makes the mortgage companies uneasy, which is why you’ll need to qualify for both loans, says Experts. If you don’t qualify, you’ll have to sell your old home first.
Buy and sell simultaneously.
To execute this plan, you need to prepare for all contingencies and to know that if your timing is off, you will face one of the two scenarios listed above. The trickiest bit can be timing the financial burden. One option is bridge financing. This enables you to own two homes for a short amount of time. To do this, you need to either borrow money from family or obtain a short-term loan from a bank or other lending institution to span the time period between when you close on your new home and sell your old one. In essence, you are getting a short-term home-equity loan.
Try to schedule the closing date on the sale of your old home after the closing date on the home you buy. In this way, you can stay in your present home until you move into your new home. Otherwise, you can attempt to negotiate a rent-back arrangement.
There is no right answer in choosing any of these scenarios. Your Realtor may be able to advise which is best, depending on the local market. However, much depends on your financial stability, as well as your tolerance for risk or disruption.
Category : Flatons Advisors Blog