A Detailed Guide To Selling A Home And Buying A New One At The Same Time

Should you sell your current home before buying your dream home? Many of our sellers have questions or concerns over the process of buying a new home using the proceeds of the sale of their current home. A few in the past had been so uneasy about it that they were seemingly paralyzed and delayed pursuing their dream home as a result. Don’t fall into this trap because there are several simple solutions to this dilemma. The questions we are exploring today in this blog are: Do I need to sell my current home before buying a new one? Or more explicitly, how do I buy a new home if I have a house to sell and want to use the proceeds for my purchase?

Our team has helped many clients overcome the challenges of selling a home in order to buy their dream home. In fact, it is very common. Most sellers need to sell their home to buy a new one. Feel free to reach out to us anytime with questions about selling your home and buying a new one at the same time.

Who Needs To Sell Before Buying?

First, most people must sell their current home in order to get pre-qualified for a mortgage to buy a new one. But that is not always the case. In some circumstances, you may be able to buy your new home and then sell your old one. This is a question a mortgage professional can answer for you more specifically. They will run the numbers for you and if they can pre-approve you as is, without selling, then you can buy first and then sell later.

This typically comes down to how much money you make compared to how much you owe on your current home. If you don’t owe anything on the house you are selling, then there is a greater likelihood you can qualify to buy without selling. Basically a mortgage professional is going to analyze your debt to income ratio, and determine if you can carry the new mortgage as is. The other factor they will consider is if you have enough cash on hand for a down payment and closing costs. You should also talk to your mortgage professional about the different types of loans (FHA, VA, Conventional, etc.) and how your situation will affect your qualification for each.

When You Need To Sell, In Order To Buy

Most people must sell their current house to buy their new dream home. This is typical if you owe money on the current home, have a higher debt to income ratio, and are paying a mortgage. The mortgage counts toward your debt to income ratio, so most people won’t qualify for a new mortgage without paying off the old one. A mortgage professional can give you a mortgage preapproval, contingent upon the sale of your current home. Your debt to income ratio is the primary concern in this situation. So make sure you don’t make any large purchases (like cars) and pay down your revolving debt if you can.

Additionally, most people need to access their home’s equity (cash value over the debt owed) that they have built in their homes to have enough for a down payment and closing costs on the new home they are purchasing. So it really comes down to three things: your debt, your income, and then the cash you have on hand for a down payment and closing costs. I always recommend that anyone considering buying a home contact a trusted and knowledgeable mortgage professional FIRST. You should outline your specific financial situation with them and then ask them what you need to do in order to achieve your goal. They can give you the plan, you just need to enact it. Who knows, maybe you will be able to get approved as-is – so it’s worth a try. You can visit our site for a list of recommended mortgage professionals we have worked with in the past here.

Four Options For Selling In Order To Buy Your Dream Home

First, some background information. Currently, we are in a Sellers Market – meaning there are more buyers than available houses. It is a very competitive market for buyers, but it’s generally a great market for sellers. It means you have a lot of buyers competing to buy your home. Therefore, most sellers don’t want to accept an offer that has the potential to fall through if there are better options available. For example, if a buyer has a house to sell that isn’t on the market yet or ready to sell, accepting an offer like this can be a higher risk to the seller. So a buyer with a house to sell can be at a disadvantage in some cases.

Someone who needs to sell in order to buy a home is in a more complicated situation because they are both a buyer and a seller. So in this market, they are at a tremendous advantage because they are selling their home, but simultaneously at a disadvantage on the buying side, because you have a house to sell. This is why it is so important to work with an experienced and knowledgeable Realtor who will help you get strategically positioned to maximize your competitiveness. Give us a call today!

Buy First: Get pre-approved for a mortgage and start looking! Find your dream home and make an offer. Then put your house on the market. When you make the offer, you will likely need to make it contingent upon the sale of your current home. In a seller’s market, this is probably the weakest position to be in compared to other buyers. The reason is if you are a buyer who has a house to sell, competing against offers from buyers who have no house to sell, you are at a disadvantage. For the seller of the house you are making an offer on, the offers with fewer contingencies are likely the safest and best option.

Sell First: If you put your house on the market first, it can actually give you an advantage over other buyers who still need to sell their house. Especially if your home is already under contract. This is generally the best option in a Seller’s market if you have a home to sell. Get it on the market, get it under contract while looking for your new place, and then make offers on your dream home. You won’t be in a better position than someone with no house to sell, but you will definitely be in a better position strategically. Learn more about the selling process here.

Rent Back: We have seen a few transactions where the sellers of a home were able to close on the sale, and then pay the buyer rent until the seller closed on their new home. This is extremely uncommon and worth a lengthy discussion with your Real Estate Attorney. Additionally, very few buyers are willing and able to do this.

Sell, Lease, Buy: Recently, this has become a more common strategy for people with the ability to do so. In this case, sellers are closing on their sale, packing their things into PODs or similar mobile storage units, and sending them to be stored at a warehouse. Then, they stay at an extended stay, rent an apartment on a month to month agreement, or stay at a friends house or vacation home. Then they secure their new home.

Now there are two ways this can work out. First, most of the time our clients have found a new home somewhere before the closing date on their sale and then had to wait a week or two to close on the purchase of their new home. But you can also wait until after closing to find a new home. It is a little more expensive to do it this way because you have to pay rent & storage. But if you haven’t found your dream home, sometimes it’s worth the wait. In the end, this option is worth considering because you have the money from your equity in hand to buy with.

In some cases, our clients have walked away with enormous sums of cash on hand from their sale and were able to buy their new home with cash. Cash buyers are in the strongest position strategically, compared to other offers, because cash means a quick close, and not having to deal with the complications of a mortgage company’s requirements. Mortgages lengthen the closing process and can complicate things with their lending requirements – creating risk to the seller that the sale won’t complete. If you need a mortgage, that’s ok! You are with 90% of people buying homes. It’s just worth understanding these dynamics. For more specific information on strategically positioning yourself – give us a call here.

The Simplest Solution

The simplest & most common way our clients accomplish their goals of selling their homes while buying a new one is to do it simultaneously. Your Closing Attorney and Realtor will coordinate everything so that you close on your sale in the morning, and then close on your purchase in the afternoon. The Attorney handles all of the final contracts, wire transfers, deeds, and title work – sending money wherever it needs to go and recording the deeds. In this case, you’re typically able to move into your new place that day. And in our experience, it goes seamlessly most of the time.

The other advantage that people often don’t understand, is that you can still be considered a cash buyer using this strategy if you have enough equity from your sale to buy your new home outright with the cash proceeds. Remember, cash buyers are in a very strong position in a Sellers Market and so are people with larger down payments. In general, they convey less potential for risk to the seller. Whatever strategy you decide upon, you should always have a great team of experts on your side to consult you through this complex transaction. Best of luck! Feel free to reach out to us any time with questions.

Eric Coury – 2021

The Coury Team Realtors specialize in working with Sellers & Buyers in Massachusetts and Rhode Island.

The Coury Team Realtors and KW ELITE are not licensed mortgage professionals or financial advisors and you should discuss your individualized situation with your advisors.

**Disclosure: The views and opinions expressed in this blog are those of the author alone and do not represent the views or opinions of Keller Williams or any other party. The contents of this blog are not meant to be interpreted as individualized advice. Please consult your tax advisor, attorney, broker, and/or financial advisor for specifics on your situation. Copyright © Eric Coury, Colonial Classic Realty LLC