One of the biggest challenges for homeowners who want to move is figuring out the timing.
Do you have to sell your current home before you can buy the next one?
Not necessarily.
Depending on your finances, the equity in your current home and the property you're trying to buy, there are several ways to purchase your next home before selling your existing one.
A Recent Example in Rocklin
Last week, I helped a client purchase a home in Rocklin using a bridge loan, which allowed them to buy their new home before selling their existing one.
For this client, there were two big advantages.
They Didn't Have to Live Through the Sale
This was probably the biggest benefit in this particular situation.
My client is a private person and didn't want to live in the home while we prepared it for sale, marketed it and had potential buyers coming through for showings.
Buying first allowed my client to move into the new home before we put the old one on the market.
It also makes preparing and showing the existing home easier. We can get everything ready, keep it show-ready and make it available when buyers want to see it.
It Made the Offer Much Stronger
The other big advantage was the offer we were able to make on the new home.
Because the purchase wasn't contingent upon selling the existing property, we were able to write a much cleaner offer with a very short closing period, a short inspection period and no appraisal contingency.
That gave us more negotiating leverage.
We were able to negotiate a healthy discount from the asking price and get the seller to agree to multiple repairs.
If we'd needed to make the offer contingent upon selling the existing home, I think getting either of those concessions would have been much more difficult. And if we'd been competing against another buyer, the contingency could have been an even bigger issue.
There Are Several Ways to Buy First
In this case, my client owned the existing home outright, but didn't have enough monthly income to qualify for a traditional loan on the new home without accessing the equity in the current property.
A bridge loan solved that problem.
But that's not the only way to buy first.
Some homeowners can qualify to carry both homes temporarily. Others have cash or investment accounts, may be able to borrow against investments, or have family who can help until the existing home sells.
I've written about some of these other strategies in more detail in my guide to buying your next home in Placer County when you already own one.
For homeowners who don't have enough cash or income to buy first using traditional financing, a bridge loan can sometimes provide another option by allowing them to access the equity in their existing home.
There Is a Trade-Off to Buying Before Selling
Buying first does come with some risk.
My client will make interest-only payments on the bridge loan until the existing home sells. There's also always the possibility that a home takes longer to sell than expected or the market changes.
In this client's Lincoln neighborhood, the current average time on market is around 40 days. That doesn't mean the home is guaranteed to sell within 40 days, but it gives us useful information when evaluating the risk.
That's also why pricing matters.
If you're going to buy first, you need to be realistic about what your existing home is worth and be prepared to price it at the market rather than counting on getting more than it's worth.
What If You Can't Buy First?
There are still options.
We can sell your current home first and negotiate with the buyer to make the sale contingent upon you finding a replacement property.
We can also make an offer on your next home that's contingent upon selling your existing home.
That can be more difficult when there are other buyers interested in the property. It can also reduce your negotiating leverage because the seller is taking on the additional uncertainty of your home having to sell.
But depending on the property and the market, it can work.
So, Which Option Makes Sense?
It depends on your finances, the equity in your current home, how easily that home should sell and how competitive the market is for the home you want to buy.
Maybe you can buy first with traditional financing, cash, investments, family assistance or a bridge loan.
Maybe selling first makes more sense.
Or maybe we need to coordinate the two transactions using contingencies.
The important thing is figuring this out before you find the house you really want.
This applies whether you're moving across town or looking for your next home in communities like Rocklin, Loomis, Auburn, Granite Bay or Lincoln.
Figure Out the Strategy Before You Start Making Offers
If you're thinking about moving, I'm happy to look at your current home, talk through the numbers and help you figure out which options are realistic before you start making offers.
Sometimes the first question isn't, "Which home should I buy?"
It's whether you actually need to sell your current home first.
If you'd like to talk through your options, contact me here.
Posted by Patrick Hake onEnjoy this blog post? Click here to subscribe for updates
Leave A Comment