Updated: May 4
When looking to sell your current home and wanting to purchase a new home it can seem daunting. This article will help explain the multiple options you have to move forward.
Evaluate The Housing Market
The first thing to do is evaluate the housing market. In a buyers market there are more home sales than home buyers. This means that it will be easy to find a new home and quickly move in once your current home sells. In a sellers market, there are more home buyers than homes available. This means that you will easily be able to sell your current home but may struggle to find a new home. If you are not sure of what the current status is, your local real estate agent can help!
Buying a New House Before Selling Your Old Home
Quality for two mortgages
This is difficult for most people financially however some people can qualify for two homes at once. This is hard for most to afford not only the down payment but also quality for the mortgage with an acceptable debt to income ratio. The pros of this method are that you can sell your old home and purchase your new home on your own time. The downside of this however is that you will need capital for the new down payment and also pay two mortgage payments at the same time.
Purchase with HELOC
A home equity line of credit (HELOC), which is also known as a second mortgage, allows you to take out equity out of your current home and use it towards a down payment on a second home. This can give you money up to 90% of your home value to help you qualify for the down payment on the new home.
Purchase with Bridge Loan
A bridge loan is a short term loan generally with higher interest rates than a HELOC. This option loans you the down payment for the new home purchase. It is highly dependent on your mortgage lender as many do not offer this option, but can help a home buyer in a tough situation.
Purchase home with a contingency
Purchasing your dream home can be completed by submitting a contingent offer that you must sell your old home before finalizing on the closing of the new home. This will likely only work in a buyers real estate market as your offer will likely be passed up by other offers. If you want a fighting chance in a sellers market, you will likely need to have a higher offer. This isn't ideal but does definitely work.
Request an Extended Closing
Purchasing a new home can have an extended closing date significantly beyond the usual 30-45 days. This will give you time to sell your current home while still having the new home under contract. This does carry some risk however since if you cannot sell your old home, you will still need to financially qualify for a second mortgage or risk losing your earnest money. This situation will usually work in a sellers market.
Rent out your first home
Renting out your old home will allow you to use that income to cover your previous mortgage. Many lenders will allow you to qualify 75% of rental income to cover your mortgage cost. This means that you can qualify for your new mortgage and even make some extra rental income in the process!
Selling Your House Before Buying a New Home
Selling with contingency
Selling your current home can be done by adding a sale contingency to the sale of your current home. This would mean that you have time to purchase your new home with a buyer awaiting your new purchase. This however will likely lower your selling price as many home buyers are eager to move into a new home.
Find Temporary Rental
Finding a short term rental can be a bit of a pain as it means having to move twice. If you do have the option to move into a friends or family's place you can also rent a storage unit so not to take up too much space. If you are moving to a new area it could be ideal as it gives you time to explore the new location before deciding on your next home.
Sign a Rent Back
A rent back agreement is when you sell your home but than rent it from your new home buyer. This will give you the capital you need for the down payment on the new home without the hassle of having to move twice.
If you are in need of a Denver Realtor® to help you buy and sell your home, together we can make it happen!