Selling your home when buying new can be a stressful process, especially when it comes to financing. If you’re looking to buy a home soon while getting rid of your current home, what do real estate experts recommend to make the transition as smooth as possible?
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Sell before buying to use your home equity as a down payment on your next home
Don’t have enough money in the bank for your next down payment? If you already own a home, you can do what 38% of home buyers do – sell your home first and use the proceeds to buy your new home.
One way to do this is to close the sale and purchase on the same day, said Nicole Root, SVP and Managing Director of the Root Team at Fairway Independent Mortgage Corporation.
“As long as you lock in the same title company, this strategy is very simple,” she said. “If you’re dealing with two different holding companies, all they have to do is link the money from one holding company to the other.”
The downside of this strategy is that it can be difficult to negotiate the same closing date with your buyer and seller.
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If you’re selling before you buy, save enough money to cover temporary storage and housing costs
What if you can’t buy and sell on the same day? According to Opendoor broker and consumer trends expert Beatrice de Jong, you can still sell early, but be prepared for additional costs.
“If you’re selling your house, it will sell very quickly. But in most cases, finding the next house will take longer than in years past,” she says. “Make sure you have a place to go and a place to store all your stuff.”
With so few homes on the market, Mortgage Network senior vice president Brian Koss advises home buyers to save enough money to live in a temporary home for a year.
“This gives you some time to think about what’s going on in the market,” he said. “Getting liquidated and making sure your home sells isn’t a bad idea, but it makes the transition a three-step process.”
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If you buy before selling, consider your financing options
Maybe temporary housing isn’t for you. In this case, consider buying a new home before selling. Keep in mind that this strategy can be more complicated because you need money for a down payment before you can make a profit on your existing home.
There are many ways to approach this step. The first option is a bridge loan, which is a short-term loan on your current home.
“For this to work, you have to be able to pay off three loans — the original loan, the bridge loan and the new loan,” Ruth said. “Bridge loans are a bit more expensive and usually have a higher interest rate, but it’s not relevant because it’s only for a short period of time.”
What adds value to your home: interior or exterior improvements?
Another option is to withdraw from your 401(k) or IRA. But keep in mind that you may have to repay yourself with interest or pay an early withdrawal fee.
For this reason, Koss recommends opening a home equity line of credit (HELOC) on your current home instead.
“When you’re first thinking about buying a new home, it’s smart to get the highest line of equity you can on your home,” he says. “It’s the cheapest way to do it, because you pay interest when you pay interest. So it works like a bridge loan but it is cheaper.
The last option is to offer an all-cash offer. According to a 2019 Redfin study, cash doubles buyers’ chances of winning a bidding war.
If you don’t have enough money in hand, as in 2010 Look for a company that offers a cash-backed program Door sponsored discounts program.
“This allows buyers to write a cash offer, which is very important in this extremely competitive market,” said De Jong. “Our data shows that 75% of sellers say they had to be 10% higher than the cash offer to win a financing offer.”
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How much money do you need to save to buy before you sell?
Although buying before selling will result in a faster turnover, it will also result in additional costs. Plan to pay off two mortgages until your first home is sold.
As de Jong said, you should save enough money for heart money.
“Once your offer on the home is accepted, you’ll need to deposit the actual amount until closing. That’s generally 1% to 3% of the purchase price, although it varies by state and market,” she says. “It sounds like a small percentage, but it’s still a big amount.”
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