Tips for Selling Your Home and Buying Another

How to not get stuck paying two mortgages.

Which should you do first - sell your old home or buy the new one? If you sell first, you’ll be under time pressure to find another house quickly - and you may end up overpaying or settling for less than you wanted. On the other hand, if you buy first you'll have to scramble to sell your old house. This could be a problem if you need top dollar on your old house in order to make the down payment on the new one.

Here are some ways to minimize the financial and psychological burdens of selling one house while buying another.

Take the Housing Market's Temperature

Before putting your house on the market or committing to buying a new one, investigate housing prices in the areas where you’ll be both selling and buying. In order to figure out how to sell high and buy low, you'll need a realistic idea of how much houses are going for that are comparable to yours.

Also, focus on whether the market is “hot” (meaning the market favors sellers) or “cold” (the market favors buyers). Since you're both a buyer and a seller, you'll need to protect yourself in your weaker role while letting your stronger role take care of itself.

Strategies in a Seller’s Market

In a hot market, selling your house will probably be easier than buying a new one. To make sure you don't end up house-less, negotiate with your buyer. After the buyer makes a written offer on your house, include a provision in your written counteroffer stipulating that the sale of your current house be contingent upon your finding and closing on a new house.

Although few buyers will agree to an open-ended period, some will be so eager to buy your house that they’ll agree to delay their closing until you close on a new house (or until a certain number of days pass, depending on which comes first).

Strategies in a Buyer’s Market

In a cooler market, you’re in a stronger position as a buyer than as a seller. To protect yourself, consider making your offer to buy a new house contingent upon your selling the one you currently live in. If a seller has a hard time finding a buyer, he or she may be willing to accept this contingency, even though it means waiting for you to find a buyer.

Bridge Financing: How to Own Two Houses Briefly

What if you're unable to perfectly dovetail the sale of one house with the purchase of another? You may own no houses for a time, which means you’ll have money in the bank and will need a temporary place to live. Or, you may own two houses at once. The following suggestions should help if you opt to own two homes at the same time:

Borrow down payment money for the second house from family or friends. Point out that you need help for only a short period, and offer a competitive interest rate. Give the lender a promissory note, secured by a second mortgage (also called a deed of trust) on your new house. Try to arrange it so that no monthly payments are due until your first house sells.

Get a bridge loan from a financial institution. If you have no other choice, you can borrow money from a bank or other lender to bridge the period between the time when you close on your new house and when you get your money from the sale of your old house. This simply amounts to getting a short-term home equity loan on your existing house, using it toward the down payment and closing costs on your new house, and repaying it when your first house sells.

However, bridge loans can be expensive (interest rates are generally above the prime rate), and the loan only lasts up to six months. In addition, bridge financing is not easy to qualify for. You need enough income to pay both mortgage payments indefinitely (using a maximum of 44% of your income to make the mortgage payments).

If you'd like to talk to us about the current Charleston real estate market, call us or use the contact form below. We are full-time real estate agents and investors, so we have a good understanding of market trends in Charleston.

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