How to Buy a New House When You Already Own One
Should I sell my house before buying a new one? It’s a question many homeowners ask. In a seller’s market new homes can be hard to come by; therefore, a lot of homeowners decide to buy a new home before selling their old home.
Buying first presents another problem – what if you can’t sell your existing home for as much as you had hoped, or worse, what if you can’t sell your home at all?
Let’s take a look at your options when buying a new house when you already own one…
Extending Your Closing Date
The typical closing date on a home is between 30 days and 90 days. Some sellers prefer a quick close if they’re in the same boat as you (they’ve bought a new house when they already own one). If you’re lucky you’ll find a seller who is willing to extend the closing day to 90 days. If you ask for anything more, you’re probably pushing your luck in competitive housing markets.
By pushing your closing date out, you’ll increase your chances of selling before your new home closes. In a perfect world your closing dates would coincide for both properties, but that isn’t always how it works. It’s important to have a backup plan in place if you’re not able to sell before your new home closes. For example, you may be able to stay at a relative’s house for the time being and put your belongings in storage (although you don’t know how long you’ll be looking, so you don’t want to overstay your welcome). Another option is rent until you find your dream home, but it’s important to ask your real estate professional about the rental market before making this decision.
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If the closing date on your new home is sooner than the closing date on your existing home, you may be able to obtain bridge financing. As long as you have sufficient funds to cover the down payment and closing costs of your new home, your mortgage lender should be willing to provide a bridge loan for up to 90 days. In order to qualify for bridge financing, your existing home must be sold firm and you have to provide a copy of the Agreement of Purchase and Sale to your mortgage lender.
The amount of bridge financing you qualify for is based on the selling price of your existing home, less your closing costs (prepayment penalties, real estate commission, real estate lawyer fees, etc.). If you’re not able to secure a bridge loan for whatever reason, going to a private lender or using your line of credit are options you should consider.
If you’re buying a new home, you can make it a conditional on your existing home selling. Although this seems like a good strategy in principle, a lot of sellers will balk at your offer. In fact, you’ll probably have to end up upping your offer price significantly for a seller to even consider your offer. In a seller’s market, this condition probably won’t fly.
The clock is still ticking with a conditional offer – you’ll usually have up to 90 days to sell your existing home. If you’re unable to sell, you can choose to walk away from your new home (not a situation buyers want to find themselves in).
Contact a Patrick Parker Real Estate professional for more tips and tricks on how to balance selling and buying simultaneously.