Buying or selling a home can be a daunting process, so the prospect of doing both at the same time may seem especially intimidating. You may be thinking, “What will happen if I end up selling before I buy? Won’t that leave me homeless? Or if I buy before I sell, won’t that leave me with two mortgages at once?” These are certainly valid concerns and real possibilities if things went wrong. But rest assured that people do it every day and live to tell the tale!
Fortunately, there are methods, tools, and experts on-hand that can make this process more manageable, less stressful, and less likely to result in such dire circumstances like homelessness or double mortgages. While quite achievable, it can still be a complex process, so let’s break down the different scenarios you may face and how to handle them.
If you decide to sell your current home before buying a new one, you face a rather tricky circumstance. You now have the money you need to buy a new dream home but buying a house can take time. Depending on how you organize your affairs and how quickly you begin the home-buying process, it could be days, weeks, or months until you have access to that new house. So, what should you do in the meantime? Where do you and your family live? Well, there are two main options.
Temporary Housing - A Costly and Difficult Option
The first option is that you locate some temporary housing ahead of time for you to stay in while you wait for the home-buying process to complete. Though rental rates are on the rise, there is still a range of options in our North Texas market. Of course, finding a home to rent can sometimes be nearly as daunting as finding a home to buy, especially when you’re trying to find a landlord willing to rent out their property for only a couple of weeks or months. If the idea of finding temporary housing that suits all your needs sounds incredibly unappealing, don’t worry. There are professional real estate agents who specialize in finding the ideal appeasements or leases just for you.
Leaseback - Best Option
This is the best option for most sellers who need more time to close on their new home. A leaseback agreement, also known as a “sale-and-leaseback agreement,” consists of you selling your old home to a Buyer, and then that Buyer leases back the property to you for a set period. In other words, a leaseback allows you to keep living in your old home for however many weeks or months you need while you finish buying a new home. The only difference is that you are now a tenant in your old home rather than the owner.
This option is very similar to finding temporary housing, as you are still paying a temporary rent while waiting for the home-buying process to complete, but this option has the added benefit of not requiring you to move your possessions until you are ready to move to your new home. Also, in a rental you are at the mercy of the landlord's terms, whereas a leaseback is part of the contract used to sell your property, allowing you to set the terms of the lease yourself. You can ensure that the lease amount is affordable, while also ensuring that you can stay in your old home for as long as you need.
There can also be some drawbacks to using a leaseback. Some buyers may not want to deal with the hassle of being your landlord, or they may just not want to have to wait for a leaseback to wrap-up. Including a leaseback agreement as a part of your selling contract could scare off a few potential buyers. Even if they accept the agreement, that leaseback is going to add an extra level of complexity to the selling process. We highly recommend you consult an attorney or real estate agent before utilizing a leaseback.
If you decide to buy a new home before selling your current home, you face another rather tricky circumstance. You now have a new place to live, but your next mortgage is dependent on the sale and mortgage payoff on your current home. Even if your new mortgage is not dependent on the sale of your current home, you'll be stuck with TWO mortgages. That is a pretty terrifying thought, so what is the best way to avoid it? Thankfully there are strategies and loan options designed to assist you in this exact scenario.
If you have an excellent credit rating and a debt-to-income ratio, then your loan institution may offer short-term financing called a Bridge Loan. Sometimes known as a gap mortgage or interim financing, a Bridge Loan rolls the mortgages of two houses together, giving the buyer flexibility as they wait for their old house to sell. The loan application process is typically much faster than a traditional loan, however, Bridge Loans are usually worth only 80% of the combined value of the two properties, meaning you must have sufficient equity in the current property and/or adequate cash savings.
High interest-rates and lender policies can make the deal a little less appealing. To keep the interest from hurting your wallet too badly, it should be paid off very quickly and replaced with a 15 or 30-year mortgage at a fair market rate. However, if your lender will not allow you to combine two mortgages with the Bridge Loan, you can end up paying a mortgage AND Bridge Loan payment at the same time. Depending on the rates and terms your lender can offer, this could be better than having to pay two mortgages.
One of the most common strategies that Texas homeowners employ when buying a house before the current home is sold is the Contingency offer. In this case, the Contingency is a clause in your offer that says, “My offer to purchase this house is contingent upon the sale of my current house.” As a result, if your attempts to sell your house fall through, the Contingency will automatically cancel the offer you made on the new house without a major expense to you. This ensures that you will never be trapped in a contract to buy a new home without the money from selling your old home.
While contingencies may keep you safe, it is much riskier for the seller, and therefore less appealing. North Texas home inventory is still low, making buyer competition is very high. By accepting your Contingency offer, a seller would not only entertain the obvious risk that you could back out, but they'd also face the stigma that attaches to properties when a sale falls through. Buyers wonder why the last buyer backed out, then begin to imagine the worst. This can make the property stay on the market too long and ultimately sell for a lower price. Bottom line: When multiple offers are coming in, sellers tend to choose one that is non-contingent over an offer that is contingent. Wouldn’t you?
This article only provides a brief overview of your options when buying and selling simultaneously. Save time, money, and stress with a free consultation regarding your specific needs. Contact us by voice, text or email to make your appointment now.