It’s a homeowner’s dream to be able to purchase their new home before selling their current property. After all, who wouldn’t jump at the chance to move at your own pace, to vacate the home and avoid the hassle of de-clutting and staging your current home, as well as the inconvenience of having to clean and leave every time there’s a request to show the home?
The problem is, most of homeowners won’t qualify for both loans and will need to tap into the equity in their current home to make this dream a reality.
Can it be done? Absolutely. There are a handful of financing options that can reverse the normal sell-then-buy scenario. But it takes timing, planning and some financial guidance to buck such an ingrained system.
Here are six strategies to help you buy your new home before selling you current house.
1. Accurately Price Your Home According to it’s Market Value
The first step is to face up to your home’s current market value. If you think it’s worth more than the market will bear, it could linger on the market when it comes time to sell, putting you in a financial squeeze.It’s important to prepare to sell the house quickly because carrying the cost of two homes — including additional real estate taxes, maintenance and utilities — quickly eats up any potential exaggerated value you think you may have in your property.
2. Calculate your Down-Payment Gap
The math is pretty simple. First, estimate the price range that meets your criteria for a new home; for example, $150,000 to $200,000. Next, calculate the down payment you’ll need (20% to avoid paying private mortgage insurance, or PMI), in the event you carry a mortgage. In this example with 20% down, the down payment is $30,000 to $40,000.Add closing costs to this estimate, as well, or about $2,500. So, if you have, for example, $10,000 in the bank, you’ll need to come up with an additional $22,500 to $32,500 to buy your new home, including closing costs.If (buyers) have the cash to do it themselves, it’s not a big deal, however, most people aren’t cash-flush enough to be able to pull it off.
3. Sell to an iBuyer
An iBuyer is a company that will make you an offer on your home within minutes (or days), sight unseen (based on a proprietary valuation model), with the intent to re-sell the home for a profit after making minor repairs and improvements (iBuyers will not consider homes that require signifcant repairs and or renovations). If you choose to accept the price, you can close in as little as a couple of days.
When would you consider selling your home this way, and who is likely to take advantage of the service? A few examples are (1) if you need to move to relocate for a job, (2) your home needs updates / improvements and/or costly repairs and you don’t have the money, time or desire to deal with renovating the home and effectively preparing it for market, (3) you aren’t interested in dealing with the inconvenience and hassles associated with listing and selling a home, (4) you are a distressed seller, or (5) you’ve found your next home and want/need to act quickly.
In Columbus and Central OH there is a better option to the iBuyer model which discounts your home beyond the cost of repairs and improvements, and tags on a full 6% commission, and that option is our first-of-its-kind Home Trade-In Program! The program was designed to help Central Ohio homeowners looking to avoid the hassle, inconvenience, uncertainty, and many of the costs (including the real estate sale commissions) associated with the traditional sales process.
Here’s how it works… we will send our Trade-In Representative to meet with you at your home to assess its value and prepare an offer that represents what we believe to be your property’s fair market value. You will receive an offer within days, there is no cost or obligation and you can accept or reject our offer.
We buy homes “as-is,” so there is no need to worry about costly repairs and updates. You also won’t have to worry about expensive bridge loans, double mortgages, home sale contingencies that reduce your negotiating leverage, being rushed to find your next home as soon as your current homes goes into contract so as to time your transactions and avoid the need for temporary housing while we work to find the perfect home for you. Furthermore, if you decide to accept our offer and agree to buy your next home through us (a service that is free to you as sellers pay real estate commissions), we will waive the real estate commissions associated with the sale of your current home!
Once you’ve accepted our offer we will then assist you in finding your replacement home. There are no limitations here and you have the option of considering: pre-owned existing homes, already completed new homes, or even building a brand new fully custom home. As it relates to builders and communities, again there are no restrictions as we work throughout the greater Central Ohio region and with every local builder. Once we’ve found your perfect home and negotiated the sale, we will coordinate back-to-back closings for your sale and purchase preventing you from having to worry about timing your transactions, or a double move and temporary housing!
4. Apply for a Home Equity Line of Credit
A decade ago, you could buy first with the help of an unsecured, short-term bridge loan. A bridge loan helps bridge the gap between the sales price of a new home and the mortgage amount; it funds the down payment until you sell your current home. Unfortunately few lenders offer these loans, however, an alternative pre-emptive move to shore up your down payment and closing cost reserve is to take out a home equity line of credit, or HELOC. Can you use a HELOC in that manner? Well you can and you can’t… allow me to explain. No HELOC lender is going to want to put a loan on a property that is going to be sold because it means that the HELOC life is going to go away and there will be no permanent customer relationship. It’s not an attractive transaction for them.The key is to obtain your HELOC before listing your current home. This allows you to tap up to 50% of your home’s equity to bring your new home within reach.Buyers often asked, ‘Why should I do that? I’m not going to need this money’ . The reason to have it is, it gives you the ability to act quickly when you find the home that matches your criteria and before you list your current home for sale.
5. No Home Equity? What about Your Stock Portfolio?
Another way to shore up your buying reserve is to borrow against your investment portfolio or retirement account. A security-backed line of credit, also called a margin loan, can give you short-term access to up to 50% of the value of your non-retirement portfolio. From an investor’s standpoint, you don’t want to wind this too tight, and we recommend you borrow no more than 40 cents on the dollar, and give yourself some room in case there is a temporary market decline.It’s also possible to borrow against your IRA or 401(k) retirement accounts. With an IRA, though, there can be steep penalties and tax consequences if you don’t replace what you borrowed within the 60-day limit.If all else fails, there may be one avenue left.It is possible that the lender on your new home would consider offering an unsecured bridge loan on your existing home. There are a lot of disadvantages to this, including that you’re not going to get the best mortgage on your new house for obvious reasons: It’s unsecured (that is there is no collateral attached to the loan). It’s not going to be very competitive.
6. Negotiate a Fallback Plan
If you’ve exhausted all options and can’t raise the cash to buy before you sell, (but you still want to try to avoid the potential of having to move into temporary housing) you may still be able to buy yourself time to house hunt and possibly avoid an interim move by making your the sale of your existing home contingent on your locating a satisfactory home to purchase, or better yet (from the perspective of your existing home’s buyer) a 45- or 60-day close of escrow on your new home.Because home inventory is low right now, the seller does have a little bit of negotiating power on this point. This would give you a 45- or 60-day window to get their next property lined up and ready to close before the sale of your current home.If that doesn’t fly, another possibility, while a long shot, might work with the right buyer. You might try to do a lease-back. In this situation the seller agrees to sell on the condition they can rent the home back on a lease for say 60 or 90 days.While many mortgage include a Due on Sale Clause which allow lenders of those loans to call them in whenever the loans are sold or transferred. If you’re buying a home today, you’re generally signing a mortgage note with a “Due on Sale Clause” which states it is for your personal residency; it’s not an income / rental property. If you’re buying a property as an investment (a rental property), that’s going to change the terms of the mortgage; they’re going to charge you more for it. If the buyers lender were to learn of the lease, they could theoretically call the loan due.
For additional details and financing options, or to get a mortgage quote contact Andy Gaggin with Fairway Independent Mortgage Corporation at 614.591.4671.
** Interested in learning about a no cost strategy that can actually increase the price at which your home sells, as well as the dollar value our client’s net from the sale? (while allowing you to locate a home to buy before you sell, or preventing the need to move into temporary housing) Call us today at 614.332.6984 for details as this strategy is one we reserve exclusively for our clients!
If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235