Oh the joys of being a first-time home buyer who doesn’t have a mortgage payment haunting them every month!
If you want to upgrade from a newbie to a regular home buyer, be ready for things to get more complicated. Unless you have been a serial house buyer for so long that you’ve gotten the hang of it, you will need to sell one house in order to be able to get another. This adds an extra set of things to worry about to an already stressful process.
In a perfect universe, you would buy a new house, settle in, begin to do life there and only then have to deal with the hassle of selling the old one once you’re ready. Unfortunately, that’s not often the case. Not only is it more expensive to pay two mortgages at the same time, but sellers will also pass quick judgements on you if they believe you are still holding on to your current house.
“My clients have struggled to get sellers to take them seriously when their houses weren’t in escrow, or on the market. They were only seen as serious buyers once their houses were on the market” says Sandi Durr, a realtor based in Houston.
It can be done! If buying and selling at the same time is the only ‘serious’ option, here’s all the info you need to minimize stress at every point in the process:
Understand The Market
Before you put your house up for sale, or start house hunting, make sure you really get to know what the housing market is like both in your area and in the area you plan on moving to. Is the market tilted towards sellers or buyers? When are the high and low buying seasons?
It’s only after you understand the market that you will be able to create a good strategy. This doesn’t mean that you should buy the first house you like once you’ve researched: look for a few options. This way, the chances of finding yourself in a tough spot if your seller pulls out are much smaller. You can sign up here to get notified when houses in your preferred areas become available.
You will also want to get an appraiser to give you a fair price for your old house. This is definitely not the time to make rash decisions, or be too demanding: Even two additional months on the market–because you didn’t want to accept a lower price–means two months of double mortgage payments that you could have avoided. Two extremely long months…
Plan, plan, plan!
Sell first, then buy–or the other way round? Both have pros and cons. If you sell first, it could be easier to get a mortgage, but you’ll also need to get temporary accommodation. If you buy first, your moving process will be easier but it will change your debt-to-income ratio, making it harder for you to get a new mortgage–on top of the additional stress of making mortgage payments on two houses.
It really is like running across a tightrope with no pole to help you balance. Your finances are on the line too. When you’re deciding whether to buy, or sell first, you have to think further than “How can I eliminate all the stress from moving?” and instead consider questions like “Can I afford two mortgages? What if my home goes for lower than my asking price?”
Whatever you choose to do, make sure you’re ready for the consequences: either having to deal with the financial pressure of having two mortgages, or having to get temporary accommodation and storage in the short term.
… but don’t rely too heavily on timing
When you’re selling and buying houses at the same time, there are many factors you might not be able to account for. It’s hardly a straightforward process. Don’t forget: You’re one of several parties in this equation. There’s are buyers, sellers lenders. All your ducks might be in a row, but you can’t account for other people’s ducks. Closings are quite prone to delays. Your buyer might have trouble getting approved for their mortgage; you might discover some new issues during your home inspection.
Sandi Durr says “You’re relying on the seller of the place that you’re buying to be ready to move in sync with the buyer of your house.” Ideally, that’s how it should work, but in reality one party is often out of harmony.
So even if you are prepared to rent a place while you sell your house, understand that even the most detailed plans go wrong–and you might end up with two mortgages. Getting yourself ready for this remote possibility ahead of time can save you a lot of stress in the future.
Know your financing options
If you decide to sell first, the process is a little bit smoother, other than the burden of renting a place before you move into the new place. However, you do have the option of a rent-back agreement, where you can negotiate with the buyers and lenders to be able to stay in your property for up to 90 days–usually in exchange for a reduction in the asking price, or a small rent fee. This can help the transition go a bit smoother, giving you more time to shop for a house.
Contract Contingency: A buyer can request that the purchase of their new house be tied to the successful sale of their current house. If you are looking for a house in a super competitive market, this might not work; if however, the seller of your new home has had trouble getting interest, this might be an ideal arrangement for all parties–assuming you can actually get them to believe that your house will sell in good time.
Bridge loans: This method of financing lets you own two houses at the same time if you can’t afford to make a second down payment. This option is particularly suitable for someone who planned to sell their house first and use the funds to buy the second. It would like a short-term loan that is to be repaid once your original home is sold.
Don’t rush because you’re afraid
If you’ve successfully sold your current house, but haven’t been able to find a suitable house to move into, don’t let anxiety rush you into making a decision that you will later regret. Sandi suggests that his clients plan a short rental in anticipation of this situation so they don’t feel backed into a corner. After all , a house is a long term investment; it’s not a decision you want to take lightly.
Found your dream house just when you needed to? Fantastic! But don’t feel like you have to let go of some of the things that you really want just because you might be running out of time. On the other hand, don’t settle for a bid that’s too low for you just to ease the burden of having two mortgages. If you have temporary accommodation sorted out, you’re far less likely to make a compromise you might regret later.
Buying and selling a house at the same time will definitely be stressful at different points–but it can, and has been done. Careful planning and consideration of the risks can help you minimize stress.