The Financial Dilemma
It’s never simple when you’re ready to move to a new home and you already own one that you need to sell. Are you feeling like it’s a logistical and financial dilemma?
If you have decided to move, you should know what you’re looking for in your next home, how much you want to pay each month, and what neighborhood you’d like to focus on for your home search. If you are still questioning if you should move check out our last blog post HERE to help you answer that question. You will want to be fully prepared and ready to go whether you are selling or buying first.
The first thing you need to do is speak with a local lender and determine what you would qualify for in your next mortgage. You need to find out if you can afford to move and if can you buy before you sell.
IF YOU NEED TO SELL FIRST
If your lender says you can sell first, one of the things you need to figure out is where are you going to live between selling and buying. Sometimes you can time it so that you can sell your home and remain in it until you close on your next home. You can only stay in your current home for 60 days after closing, so you will need to find a home and close on it within those 60 days.
If you want to stay in your home, you will want to negotiate with your buyer to get the most time in your home after closing. That might require you to rent back your home. In the Grand Rapids area, we see many sellers being able to stay in their homes for 30 days after closing but after that, the buyer will want money to cover their mortgage payments.
There are also other options for places to stay while looking for a home, short-term rentals like Airbnb, campers (if it’s not winter), a cottage, or staying with relatives. We know that moving back in with Mom and Dad may not be your ideal living situation but short term it might be just what you need!
A question we are asked a lot is “Couldn’t I buy my next house contingent on my home selling?” Depending on the market you can buy your next home contingent on the sale of your current home. In a seller’s market, (which we are in now and have been for a while) there are more buyers than there are homes available, sellers can be picky on the offers they choose. When they have a choice, they will more than likely not choose to accept a contingent offer. In a buyer’s market, there are more homes than there are buyers so a contingent offer would be happily accepted! The seller is just happy that someone wants to buy their home.
You are going to want to make sure you know where you want to live next and that the neighborhood fits into your budget. There is a huge difference in prices based on area. You will want to start looking at what is available in the area you like to see how often homes become available. Sometimes people love a neighborhood and don’t move frequently. Homes may only come on the market every few years. If that were the case, you would need to be strategic about your timing or pick a different neighborhood that would work on your timeline.
You need to be strategic in finding your next home and that requires you to have a clear understanding of what your deal breakers and must-haves are. You need to be aware of what you are willing to compromise on to get into your next home.
The upside to selling first and then buying is you will have all of your funding ready to purchase your next home. The downside is timing it just right so you don’t end up with no home and nowhere to live.
IF YOU NEED TO BUY FIRST
When the lender says you can buy first and then sell your home, that means you have either cash on hand or a significant amount of equity built up in your current home. The simplest way to buy first is if you have cash, investments, or a 401k you could borrow from. Not everyone has that though so we are going to give you some other options, but they require you to have equity in your house. Because You have to get financing based on the equity in your home.
One of those options is a home equity line of credit. So basically that takes equity that you have in your home currently and you can take the money out and use that for your down payment and your closing costs.
We had a client who did this. Their home mainly was paid off so they had a lot of equity built up in their home and they were able to get a home equity line of credit. They took that money and used it to buy their next house. Then when they sold the home that they were in, they were able to pay off the home equity line of credit and use the rest of their equity to pay down their new mortgage. This is a really easy way to do it but you do need to discuss the details with your lender to make sure this will work in your situation.
Another option is a “Bridge Loan” which is a gap loan using the equity in your home. You would have two loans to pay until you sell your home. You would pay the bridge loan off when you sell your home and go back to one mortgage payment.
An Equity Forward Loan is a conventional short-term loan that takes a chunk of your equity from your current home to purchase a new home non-contingent. You can use the equity from your current home for a down payment, appraisal gap, closing costs, and more. It is less expensive and easier than a Bridge Loan.
Buying first takes preparation on your part. You need to get your current home ready to sell long before closing on your new home. You will need to declutter, pack, do touch-ups, take care of repairs, paint, and clean.
You are going to want to have your house ready to sell so that it can get on the market as soon as you are under contract and have gone through inspections on your new home.
Timing still needs to be considered when you buy first because you want to time the sale of your home and the possession of your new home so that you don’t end up with two homes and two mortgages. Keep in mind that 30 days after closing on your new home your mortgage payment will be due.
The upside of buying first is that you can take the time you need to find the house you truly want. The downside is you have to time it so that you don’t end up with two payments on two homes for too long
Whether you are selling first or buying first, both of these plans require planning and a good strategy! You will want to talk to a real estate agent and lender long before you are ready to move to get a strategic plan in place. Contact us at email@example.com to start the conversation.
We're April and Jean, we help first-time sellers in the Northeast Grand Rapids area. Our number one focus is you! We are here to guide you through the process of selling your first home and buying your next. That way you can buy and sell with confidence.
2905 Wilson Avenue SW
Grandville, MI 49418
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