Buying and Selling at the Same Time
I think most people in Columbus realize that real estate very much a seller’s market these days. The number of days a house spends on the market is at an all-time low. We continue to see a shortage of inventory. The average sales price of a home in Central Ohio recently hit its highest point ever. And in some parts of town houses are in contract within a day or two of being listed.
If you’re a new homebuyer, this can be a frustrating time. However, if you already own a house and are looking at making a transition, you face a dilemma as well. Sure, you can sell your house easily enough, but then where do you go? How do you navigate the buying and selling process in such a crazy market? Ideally, you would just go buy your new home, move, and then once the dust settles, sell your old home. However, making two mortgage payments (or even qualifying for two mortgages) is not a realistic option for most people. Here are a few things to consider.
Get to Know the Market
Before you do anything, it’s a good idea to get familiar with the market. Figure out where you want to go next, what kind of house you’d like, and how plentiful your options are. The more particular your wants and needs in your next home, the fewer options there will be, and the longer you may have to wait for a listing to hit that checks all of your boxes. On the other hand, if you are open to many options, you may be able to move relatively quickly because there will likely be several candidates on the market at any given time. Neither scenario is the “right” answer. You just have to know where you stand.
It’s equally important to be crystal clear about your current home. Talk with a Realtor® to figure out what your home is worth. You are working together to determine a fair sale price. This is not the time for delusions of grandeur. Listing too high could mean 2-3 additional months on the market, which either means 2-3 more months before you can look for your next home or 2-3 months that you’ll be making 2 mortgage payments.
Once you’ve determined what price you want to list your house for and where you want to go next, it’s time to decide: do you sell first or buy first?
Selling your current home first makes qualifying for a mortgage much easier, but it means you will have to find a temporary place to live. However, that doesn’t necessarily mean moving out. If you can negotiate a rent-back agreement with the lenders and buyers, you may be able to stay in the house for 2-3 months while you look for your new home. Usually such an agreement is done for either a lower selling price or rent paid to the buyers.
Of course, not all buyers are going to be willing, or even able, to rent your old home back to you. In that case, prepare to pare down your belongings to those you need over the short term and put the rest in storage temporarily. Then see if you can find somewhere that you can rent on a short-term basis while you search for your next home. If you have prepared in advance to live in a short-term rental, you won’t feel rushed to make an offer on a home you wouldn’t normally consider.
If you are fortunate enough to have deep pockets for a second down payment while you still own your existing home, congratulations. If that’s not your situation though, don’t despair. There are a few other options that might work for you.
Your agent can help you write a purchase contract stating that your purchase is contingent upon the successful sale of your existing home. For the majority of homes in Central Ohio this may not be a great option, as high competition will likely provide the sellers with another offer that does not have such a contingency. However, if a seller has had trouble attracting buyers, this may be an attractive option for them as long as you are sure your home will sell relatively quickly.
HELOC or Bridge Loan
If you don’t have the cash available for a down payment on your new home before you sell your current one, you may be able to borrow that money for a short time. You may be able to qualify for a Home Equity Line of Credit (HELOC) against the equity in your existing home. You can use that credit line to pull cash out for a down payment on your new home, assuming you can qualify for the second mortgage.
Another option is a bridge loan. If you think of your down payment as the “gap” between the amount your lender will loan to purchase a new home and the home’s full sale price, then you can think of a bridge loan as financing designed to “bridge the gap.” The loan is then repaid upon the sale of your original home. Bridge loan lenders often require that you get your new mortgage from them, which can limit your ability to shop for the best rates, and bridge loans usually carry high costs and fees. However, they are a good option for some buyers.
Flexibility is Key
Whether you’ve decided to sell first or buy first, above all be flexible. Keep in mind that you are not the only party in this transaction. There’s a buyer when you’re selling and a seller when you’re buying, and each of those parties bring their own variables. Closings are often delayed. Buyers can’t always get the mortgage they thought they could. So the number one rule to follow is: be flexible. No matter how well your plans have been crafted, real life can throw you a curve ball. You may still end up in temporary housing even though you were set to move into your new home before the old one closed. You may have to make an extra mortgage payment or two even though your buyers were supposed to close on time. Be prepared to roll with it and you will find that a transition is possible, even in this crazy market.