Trying to find a new home while trying to sell your current home is stressful. Since most people can’t afford two mortgages, one might think the options are limited when it comes to buying and selling in the same timeframe. Will the stars align to close on two homes simultaneously? You have several options. Compare them and decide which way works best for your situation.
Options for Buying First
Find a Home and Use a “Sale and Settlement Contingency.” Do you think your home will sell faster than you can find a new one? You might opt to search for a home and use this contingency with your offer. This contingency means that you make an offer on a home with the contingency that you’ll have a contract to sell your own home first, within a specified time. Of course if you’re buying in a competitive market, the seller may easily find another buyer who does not have such a contingency.
Cover the Overlap with a HELOC or Bridge Loan. If you find a new home right away and you don’t have the savings to cover two mortgages, these are possible options. A HELOC (home equity line of credit) is a loan agreement up to a maximum amount for a specified term where the collateral is the borrower’s equity in his or her house (akin to a second mortgage). A bridge loan is a short-term bank loan to cover the interval between buying a new house and selling the old one. Bridge loans can be difficult to find.
Rent Your Current Home Instead of Selling. If you’ve found a new home and the rental market is strong where you live, consider renting your old home to cover the mortgage. This works if you aren’t reliant on the sale of your home for a down payment on a new home. With this option, your location must command rent prices that cover not only mortgage and insurance, but upkeep as well. You’ll also need to take on the landlord role or pay the fees for someone to manage the business of answering to renters’ needs, collecting rent, and maintaining the property.
Options for Selling First
Use the Settlement Contingency. In this option, put your home on the market while searching for a new one, but do not make an offer until your current home is under contract. It’s critical that you know exactly what you want in a home so that you can make a quick decision. When you make the offer, you can include a “settlement contingency,” which means your offer is contingent on the selling of your current home by a specific date. If something goes awry and the home doesn’t settle by that date, you can pull out of the deal on the new home. The downside is that your offer might be less competitive than another buyer’s whose offer does not have such a contingency.
Sign a Rent-Back Agreement with Owners of Your Old Home. If both buying and selling parties agree, a rent-back agreement can be used when a seller needs to stay in the house for a set period of time after closing. In this scenario, the seller pays rent to the buyer in exchange for staying in the home while searching for a new one. Of course not all buyers will agree to such an arrangement and making this mandatory for a sale may reduce the number of offers on your home.
Live in Temporary Housing Until You Close on a New Home. If you aren’t able to get a HELOC or bridge loan, selling first and finding temporary housing is an option. This may also allow you more time to search for a dream home instead of making a rush decision. Moving twice may seem like a hassle, but it enables you to make a competitive offer without needing a settlement contingency.
Each option has its pros and cons. Work with your agent and lender to figure out what makes the most sense for your situation.