How to Buy a New Home Before You’ve Sold Your Current Home
A residential relocation has many moving pieces. Getting those moving pieces to fall into place can often be stressful. One particular challenge is buying a new home while selling your old one. Ideally, you want the buying and selling to occur at about the same time. However, the ideal only sometimes happens.
Here are some ways to buy a new home if your current home has yet to sell.
Make a Contingency Offer
You can make an offer to buy a new home contingent on your being able to sell your home within a specific time. You can walk away from your contract if you can’t sell the house by the time limit.
The downside is that some sellers won’t accept a contingency contract, especially if another buyer offers a contract without a contingency.
Get a Bridge Loan
A bridge loan is a short-term loan that uses your current home as collateral. You can use the bridge loan to obtain a down payment for the new home and to pay the mortgage on the old home until you sell it. Sometimes, you can negotiate with the lender to make no payments until the sale. The loan is repaid from the proceeds of the sale at closing.
The downside of a bridge loan is that the interest rates tend to be higher than conventional mortgages, and they often have origination fees. However, they offer a good solution in many cases, especially if your old home is likely to sell quickly.
Use a Home Equity Loan
A home equity loan or line of credit allows you to borrow on the equity in your current home to make a down payment on the new house and to make payments on the existing home until it sells.
Home equity loans have higher interest rates than first mortgages but lower rates than bridge loans. Some HELOCs require that you pay interest only for a period, making payments more manageable than a bridge loan. These loans also tend to have fees, however. You also should look carefully at whether you can pay all three mortgages.
Borrow from Your 401k
Some 401k plans allow participants to take loans from their savings at relatively low-interest rates. If you opt for this, ensure you can repay the loan relatively quickly, or you may jeopardize your retirement.
In a sale-leaseback, you sell your home and then lease it back from the new owner for a specified time. The arrangement allows you to look for a new home after your home has been sold and does not require you to take out another loan. It also frees up all the equity for a down payment rather than a percentage, as in a home equity line.
The downside is that some buyers cannot accept an arrangement like this because they’ll want to move in immediately. You also are still on a timetable, so you’ll want to be certain market conditions will allow you to find a home relatively quickly.
If you’re planning to buy a home and have a home to sell, consult your real estate agent or financial adviser for the best option. Also, remember to book your professional mover early in your moving process. Then, contact us for more moving details.