How to Best Navigate Selling Your First Home and Buying Your Second
How Do You Sell a House and Buy One at the Same Time?
If you thought that buying your first home felt like a whirlwind, wait until you decide to purchase your second home. You may find yourself longing for the simpler process of going from a renter to a homeowner.
What makes moving from your current home to a new home so challenging? Lots of things, but your exact challenges will depend a lot on the way you chose to make your move.
Looking at the situation in its most basic terms, there are essentially two paths you can take. Both have advantages and disadvantages.
Option A: Move From First Home, to Short-Term Rental, to Second Home
With Option A, you sell your home, move all of your things into temporary storage (usually with a monthly fee) and find a short term rental to live in (which are typically far more expensive than 12-month leases) while shopping for a new home. When you purchase the new house, you’ll have to move all of your things from temporary storage into your new home. It’s a hassle, but doable, and likely, the more affordable of the two options.
Option B: Move From First Home Right to Second Home
With Option B, you agree to buy a new home (assuming you can get a loan approval without selling your current home) and then hope to sell your current home before the closing date. If you can’t, you will be paying two mortgages.
In between Option A and Option B are a number of subtle variations, all with their own challenges and upsides.
Ultimately, there is no right answer for everyone, just an answer that’s right for your situation. How do you know which way to go? Our best advice is to work with a personal loan officer. They can’t tell which path is easier, but they can tell you which option is financially feasible. And like most aspects of the homebuying experience, what you can do is dictated by how much you can get approved to borrow and the type of home loan program you’ll be using.
Is It Better to Sell Your House Before Buying Another?
Because it’s the most financially attainable, Option A is a common scenario. It’s impossible to say this is the better choice, but it’s safe to say that Option A has the least amount of risk and can be a less stressful choice.
As we mentioned before, short term or month-by-month leases are usually more expensive than leases lasting 12+ months. If you have a family and require multiple bedrooms or a large space, the cost of a short-term rental can rival your mortgage payment. Ouch. So what’s the best way to find an affordable interim home? Turn to social media.
By tapping into your friends, extended family, and social network, you can often find a place to stay for far less than going through a rental property listing service. The options you might come across range from staying at a friend’s place to being a caretaker while someone is away on an extended trip, to even moving into someone’s home that they are trying to sell. There are all kinds of reasons people might have a livable space available.
If you can’t find a place to live through a personal connection, shop and compare your short-term rental options closely. Remember, this rental is not your new home, it’s your in-between place. Looking back, you’ll be better served by selecting a place that saves you money. Resist the urge to pay a premium for a perfect location with all the amenities you could ever want.
Can You Buy a Second Home With No Down Payment?
Expect to make a down payment on your next home. A no-down-payment option may be available, but you’d need to work with a personal loan officer to see if the option is available to you.
What about a home sale contingency offer? Doesn’t that solve everything including the down payment? Not really. A home sale contingency offer is essentially a variation of option B.
With a home sale contingency offer, you agree to buy a new home as long as you can sell your current home and close on it by a certain date.
On paper, it’s a perfect idea. You can take the profit from your current home and use it to make the down payment on your next home. Plus, you’ll never run the risk of being stuck with multiple mortgages. You’ll also never have to deal with temporary storage and moving things multiple times. It’s almost too good to be true.
Well, a contingency offer is a real thing and it can work. However, in a seller’s market, a home sale contingency offer can be a non-starter.
Most sellers, unless they are desperate, will not accept a contingency offer because it’s not in their best interest. Sellers want a sure thing, and a contingency offer can fall apart for many reasons. If you can get a seller to agree to a contingency offer, do it. But don’t count on it in a tight market, with a highly desirable property or a new listing.
Selling and Buying a Home at the Same Time Using a Bridge Loan or HELOC
If a contingency offer isn’t viable, there is a financial maneuver you can attempt that gives you many of the same advantages. You can ask a lender for a bridge loan or a home equity line of credit (HELOC). To qualify, you’ll need an exceptional credit score and a sizable amount of built-up equity in your current home. This makes it unattainable for many borrowers.
Using a bridge loan or HELOC allows you to buy a new home before selling your current home. But, that might not be a great idea.
There’s no way of knowing how long it will take to sell your current home, which means you could end up paying your old mortgage, your new mortgage and the bridge loan/HELOC payment for months and months. Obviously, that can be expensive. This is why we don’t often suggest using a bridge loan or HELOC option. You should only consider this option when working closely with a trusted, personal loan officer who is highly involved and understands your financial situation and real estate market.
Is It Hard to Buy and Sell a House at the Same Time?
Buying and selling a home at the same time is hard, but it’s not impossible. It just requires planning and guidance. The best way to find your way forward is to work with a personal loan officer. They can apply real-world numbers to each option so you know what you can do, and ideally, what you should do. Ultimately, what’s meant to be will be. Whether you choose a contingency offer, plan to sell, rent then buy, apply for a bridge loan or something else, your personal loan officer will be there to guide you home.