If you plan to sell your home and buy another, which should you do first? If you sell first, you'll be under time pressure to find another house quickly -- and may end up settling for less than you wanted, or overpaying. But if you buy first, you'll have to scramble to sell your old house -- a particular problem if you need to get top dollar on your old house in order to make the down payment on the new one.
Here are some ways to minimize the financial and psychological downsides of selling one house while buying another.
Take the Housing Market's Temperature
Before putting your house on the market or committing to buying a new one, investigate the prices of houses in the areas where you'll be both selling and buying. In order to figure out how to sell high and buy low, you'll need a realistic idea of how much comparable houses are going for.
Also focus on whether the local real estate market is "hot" (favors sellers) or "cold" (favors buyers). Since you're both a buyer and a seller, you'll need to protect yourself in your weaker role while letting your stronger role take care of itself.
Strategies in a Seller's Market
In a hot market, selling your house will likely be easier than buying a new one. To make sure you don't end up house-less, negotiate with your house's buyer to have the sale contract include a provision making the closing contingent on your finding and closing on a new house.
Although few buyers will agree to an open-ended period, some will be so eager to buy your house that they'll agree to delay the closing until you close on a new house or until a certain number of days pass, whichever comes first.
Strategies in a Buyer's Market
In a cooler market, you're in a stronger position as a buyer than as a seller. To protect yourself, consider making your contract to buy a new house contingent upon your selling your current one. A seller having a hard time finding a buyer is likely to accept this contingency, even though it means waiting for you to find a buyer.
Bridge Financing: How to Own Two Houses Briefly
What if you're unable to perfectly dovetail the sale of one house with the purchase of another? You may own no houses for a time, in which case you'll have money in the bank and will need a temporary place to live. Or, you may own two houses at once. The following suggestions should help you deal with such juggling acts:
Borrow down payment money for the second house from family or friends. Point out that you need help for only a short period, and offer a competitive interest rate. Give the lender a promisÿsory note, secured by a second mortgage (deed of trust) on your new house. Try to arrange it so that no monthly payments are due until your first house sells.
Get a bridge loan from a financial institution. If you have no other choice, you can borrow money from a bank or other lender to bridge the period between when you close on your new house and when you get your money from the sale of your old one. This simply amounts to getting a short-term home equity loan on your existing house, using it toward the down payment and closing costs on your new house, and repaying it when your first house sells.
Bridge loans can, however, be expensive, and they're not easy to qualify for -- you have to have enough income to pay both mortgage payments indefinitely.
Copyright 2008 Nolo