January 2nd, 2015 4:27 AM by Jackie A. Graves, President
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. There are a few
ways to pursue this plan:
1. Sell first, 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.
2. Buy first, 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.
3. 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, also known as a
HELOC, a Home Equity Line of Credit, on your present house and using it as a
down payment on your new house. You then repay the loan when you sell your
first home. It is not easy to qualify for a conventional bridge loan, since you
have to demonstrate that you have enough money to pay for both mortgages for an
indefinite period of time.
Experts advise applying for the HELOC well
before you buy a new house. That way most of the credit on the line is unused
until you actually need it. Lenders don’t like a HELOC that works only for a
very short time, and it’s a challenge to get a HELOC if your present home is on
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.
By: Deidre Woollard | Herbert J. Cohen contributed to this article.
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