How to buy a home before selling your current home?

Few people live in a home for the rest of their lives, so the first home you buy will likely not be the last. According to Realtor.com in 2021, U.S. homeowners tend to live in a home for about 10 years before selling it. Other accounts range from 6 to 18 years.

Buying your next home while selling your current home requires a great deal of coordination and planning. This is because moving is always stressful, whether you want to sell your house and buy a new one because of a job transfer, you need to move to a better school district, or your current home is not big enough to accommodate your entire family. So, how do you buy a home before you sell your current home?

Should you buy or sell first?

Literally, it seems better to sell first, but in reality, selling before buying can be a very inconvenient experience for many homeowners. Common inconveniences include the following:

• In order to sell for a good price, often real estate agents will recommend that you get it in tip-top shape before showing it, which means some level of maintenance is required. However, making repairs while going about your daily life (especially if you have pets or children) can be stressful and inconvenient.
• If you want to sell your home while living in your old one, you must be prepared to suffer from the distraction of showings. As a key part of the sales process, showings allow real estate agents to offer tours to potential buyers, highlight the best features of your home, and test their interest. Because most Realtors recommend that sellers not be present during showings, it can be an inconvenience when buyers want to visit and you need to leave the house first.
• It may be a dilemma to move multiple times. In this current market where housing inventory is still low, your old home may sell quickly, but finding a new home takes time and opportunity. This means that you will need to move at least twice before your new home is finalized.

The most obvious advantage of buying a home before you sell your current home is that you know you will have a place to go when you sell your home. There is nothing more frustrating than having to find a short-term lease, especially if you have pets, children or heavy furniture. If you are a new tenant, many places do not allow month-to-month rentals. This means that even if you only need a month, you may have to pay multiple months of rent. Also, if you have a house to move into, then you won't have to pay twice for moving expenses. Buying up front also means that you can stay in your current home while you look for a home without having to include sales contingencies, etc. in the sale or offer.

But, of course, not everyone can afford to buy first. Traditionally, you may end up dealing with two mortgages at once, and you'll still need to come up with the cash for the down payment. However, there are companies, lenders and brokers that can help you buy before you sell.

What are the options if I choose to buy before I sell?

Cash out to refinance

In the U.S., a conventional home mortgage has a 30-year term, but because you want to buy a new home before selling your current one, you will likely need to prepare to move before paying off your current home loan.

Mortgage rates may also have changed since you bought your home, so refinancing could come in handy. Refinancing your mortgage means rewriting your current mortgage by applying for a new loan for the current value of your home with new terms, interest rates and conditions. You can extend or shorten the term, reduce the interest rate, or even switch from an adjustable rate mortgage to a fixed rate loan.

A cash-out refinance is similar to a traditional refinance because you will get a new loan for a new, usually higher value, home. The bank will provide you with the loan after the home has appreciated in value; since that amount exceeds the original loan, you keep the cash difference and repay the total amount as you would have done for the original mortgage. Essentially, the cash you receive is the amount by which the value of your home has appreciated since you purchased it. As the value of your home rises, this may be enough for a down payment on a new home, given that the National Home Price Index is at an all-time high in 2021.

But cash-out refinancing isn't for everyone. It has some requirements, including having at least 20% equity in your home, good credit, and a debt-to-income ratio of 43% or less.

Home Equity Loan (HELOC)

A HELOC, also known as a second mortgage, is a loan you borrow against the equity in your home. HELOCs can be used for any type of purchase or expense - school tuition, medical expenses, home repairs, etc. - the money can also be used for a new home's down payment.

HELOCs are different from traditional home loans because they are more like credit cards: you only pay back the amount you use as you use it. Think of the amount of equity in your home as your HELOC line of credit: you can borrow money from that equity and only pay interest on the portion you use. HELOCs are best for short-term situations because their interest rates fluctuate with the market. Another serious issue to be aware of is that a HELOC default could mean you could lose your home.

At the time when the old home CLOSES, the full amount of equity you withdrew will be due. You need to make sure your projected sales price is enough to cover your debt and the cost of the sale. You can check the terms and fees, which usually have minimum withdrawal requirements and early termination fees. The lender of your new property will factor your monthly payments (or estimated payments) into your debt ratio. In addition, your credit score may be affected by the additional leverage.

Get a bridge loan

A bridge loan is a short-term loan that, as the name implies, is specifically designed to bridge the gap between the sale of a home and is most often used to help homeowners purchase a new home before selling. Like a HELOC, a bridge loan is a loan you take out against the equity in your current home and is primarily used for short-term financing.

Because it's a loan secured by the equity in your current home - and your current home may have appreciated in value - a typical bridge loan will not only pay off your current loan, but also give you enough money for a down payment on a new home. Bridging loans are not without their drawbacks they are relatively expensive. Because they are short-term loans, lenders will attach high interest rates to the loans. But bridge loans are also accepted by many people because of advantages such as quick payoffs.

YouLand bridge loans can provide you with a bridging loan to help you complete your home purchase or home flipping investment! We are pleased to introduce YouLand's new Point of Sale (POS) system that makes it easy to submit applications for bridge loans (including bridge and renovation loans, as well as construction loans).Whether you are a loan broker, loan officer, or real estate agent, you will be able to:

• Be 100% online with 24x7 access
• Instant pricing and pre-approval to submit an offer
• Close quickly and win deals in as little as 3 days
• Earn more commissions and referral fees

Sales Surprises

Generally, Sales Blitz will give you 30 to 60 days to find a buyer for your current home. If you do it within the given period, that's really good. If it doesn't, your offer on the new home will be voided and the seller will move on to the next offer on the list.

But it's important to remember that sellers don't like offers that include sales contingencies because it adds both time and unpredictability to the closing process. In today's competitive market, sellers may prefer offers with fewer or even no contingencies when a home sells quickly in a fierce bidding war.

Use sale-and-leaseback contingencies

Contingencies are a common way for buyers and sellers to protect their interests when buying a property or negotiating a deal. Sellers may ask for a leaseback to buy them more time to purchase a new home after they sell theirs. As part of the negotiation, the buyer and seller of the home will agree on the term of the leaseback and the monthly rent.

In a seller's market, the buyer may be more willing to accept this contingency. As a seller, the benefit of a leaseback is that you can complete the sale and raise the cash needed to purchase a new property without having to move.