Most first-time home sellers never think about how tricky this process can be, until they do it. Buying a new home while you’re still residing in your current home can create a long string of dominoes. If one falls over, the whole thing falls apart. I want to walk you through it, to ensure that all the pieces come together easily for you.
Here are the four ways you can buy and sell a home simultaneously:
The first way is closing contingent. Most homes are sold on a contingency. In this case, you would put an offer in on a new home that obligates you to buy it only if someone buys your home. This is a great choice for someone who has a home to sell, because there’s very little risk. In essence, if your buyer falls through then you reserve the right to back out of your contract as well. The obvious drawback to selling a home contingent is you transfer all of the risk to the home seller, and most home sellers don’t want to assume that risk on behalf of their buyer. This is especially true if you’re trying to sell a home in a highly competitive market. Think about it, if you had multiple offers on your home, five of them were contingent but one of them writes a contract non-contingent, wouldn’t that one be more appealing to you? You see, most home sellers want a surefire deal, and contingency doesn’t fit the bill in these types of markets. This is why some buyers will make every attempt to buy their new home without a contingency. The next three ways will show you how.
The second way is to own both homes. This is a viable option if you can afford to carry two mortgages. In this case, you would get a mortgage on the new home and wait to move out of your current home until you’re ready. This process is helpful when you are turning your old home into an investment property and you’re planning to rent it out after you move into your new home. It’s also helpful when your new home needs major renovations, but you don’t want to move in until the renovations are complete. The only drawback to this process is that you can’t apply the sale of your first home onto the second, which means that you’ll need to be approved for a second mortgage while you’re still paying the first. You’ll also need cash for the down payment and closing costs on the second home as well.
The third way is to rent a home. There are two ways to do this: rent a random home or rent back your current home. If you opt to rent a random home, this is pretty easy. You would simply sell your current home, then find a new home to rent until you find a new home to buy. But there are some definite drawbacks. It’s tiresome to move multiple times in a year, there may be heavy storage fees or pet boarding fees if you house things temporarily, and you may be obligated to a long lease if you find your new home earlier than expected. The second option is when you rent your own home. This is called a rent-back deal. In this case, you would stay in your current home after it sells renting it back from the buyers. You would get all the proceeds from the sale of your home which gives you both the time and money to purchase a new home. Of course, the big drawback is that it transfers the risks to the buyer, and most buyers are hesitant to take the risk of renting their new home to you and prolonging their own move-in date.
The final way is to close non-contingent. This is a riskier option, but it’s still a viable one. In this case, you would buy the second home without being able to break the contract if your home fails to sell. In this case, the home buyer assumes all of the risk. But in highly competitive markets it may be the only way to make your offer stand out.
Again buying a home when you have a home to sell can be tricky. You need a good Real Estate Agent who can guide you through that process. So if you’re thinking about making a move, either to purchase a home or sell your current one, let’s chat!
