Unless you’re upgrading to a new home every year, chances are the buying and selling process has changed significantly since you were last in a closing. The market is different, new lender requirements have been introduced and you probably have a different set of needs for your next house, leaving you stuck at the first step: Should you buy your new home or sell your current one first?
A simple way to solve this potential conundrum is to look at how much risk you’re comfortable taking on. If the thought of making payments on two homes at the same time if your current home fails to sell quickly sounds painful, securing a sale before starting your search for a new home might be your safest bet.
“I’d want to get my house sold first, and then get out there to look – it would just make me nervous to do it any other way,” says David Howell, executive vice president and chief information officer of McEnearney Associates Inc., a real estate firm covering the District of Columbia metro area.
But there are other factors that can sway your decision. Rising home values across the country and low housing inventory may mean that you could sell your home but not be able to find the next place you want right away. The pressure to find a new place to live could tempt you to buy a home lacking key features you want and need in your next home.
For a better understanding of how you can ensure the timing of your next sale and purchase are a success, ask yourself these five questions:
Can you handle two loans at once?
Look at your income and determine whether you’ll be able to make monthly payments on two mortgages at the same time. If you can’t, a lender will tell you to sell first.
“If there’s an overlap for one day, you have to qualify for full payment [of both loans],” says Anslie Stokes, a Realtor with McEnearney Associates.
You may qualify for a bridge loan, which is a short-term loan meant to give you more flexibility in the interim between buying one home and selling another (typically six months to a year). However, not all lending institutions offer bridge loans.
You also need to know where your down payment will come from. Do you have that money on hand, or is it in the form of equity in your current home? Depending on the type of loan you qualify for, that may not be a problem, explains Kevin Parker, assistant vice president of field mortgages at Navy Federal Credit Union.
“We have 100 percent conventional [loans] and we offer [Veterans Affairs] financing. We have the benefit of, in a lot of cases, allowing members to do 100 percent financing,” Parker says, adding that homeowners then don’t have to worry about pulling equity out of their current home to purchase the next one.
How quickly do you need to move?
Your biggest motivation for changing homes can also have an impact on what you do first. If you’re relocating across the country for a new job, for example, Stokes says putting your home on the market right away might be necessary as you visit your new city to go house hunting. The faster you can sell your current home, the easier it will be to fully relocate.
On the flip side, if you’re looking for a new home as a step up – whether you’re seeking more bedrooms for your growing family or additional property to fit your desired lifestyle – it may be beneficial to hold off on selling until you find the right home.
In that case, Stokes recommends working with your real estate agent to prepare to sell your home, but waiting until your desired home in your must-have neighborhood goes on the market.
Have you factored in new regulations?
In October 2015, the TILA-RESPA Integrated Disclosure rules went into effect nationwide, requiring lenders to provide two forms laying out the details of a mortgage to borrowers, one at the beginning – the Loan Estimate – and one at the end of the loan approval process.
The second form, the Closing Disclosure, must be given to the borrower at least three days before the real estate closing. If you need to sell your home to be approved for a new mortgage, you can’t close on the sale one morning and close on your purchase in the afternoon of the same day – a lending practice Parker recalls being fairly common previously.
“Post-TRID, that presents a challenge because we have the three days that we have to deliver the Closing Disclosure, which means we basically have to have everything finalized and approved before that three-day period,” Parker says.
As a result, the process of selling one home and buying another can be more uncertain, with the possibility of delays in closing. To reduce the chances of federal regulations causing problems, be sure you’re working with an agent and loan officer who know the ins and outs of the process, says Kevin Strong, a Realtor in Salt Lake City.
“It’s very important for a good, seasoned agent to counsel their buyers and their sellers on this process – how TRID has changed things with redisclosure, where it will slow things down,” Strong says.
Do you need a leg up in negotiations?
Of course, buying your next home before selling your current one does have some benefits. In a competitive market where bidding wars are common, placing an offer that’s not contingent on the sale of your home will surely get the seller’s attention.
“If you can afford both mortgages, it typically gives the buyer more flexibility, specifically with making an offer. It makes the offer more attractive to listing agents because it’s one less thing to worry about,” Parker says.
Do you have somewhere to live while you wait?
A tight market with low inventory can leave you without a house, should you sell your home before purchasing a new one. Strong says it’s common for homeowners in Salt Lake City to sell a home in the $250,000 range with the intention of buying a home priced around $400,000. But inventory in the higher range is often so low that there isn’t a home for them to purchase immediately.
“A lot of times they’re forced to move, and they don’t have a place to go. So in some cases, these people are actually having to move to a rental,” Strong says.
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