Buy Before You Sell: The Concept
When you’re ready to purchase a new home but haven’t yet sold your existing one, you might find yourself in a tricky situation. The ideal scenario is to sell your current property first, use the proceeds for a down payment on the new home, and then close both transactions simultaneously. However, due to various factors such as market conditions, timing, and personal circumstances, this may not always be possible.
To overcome this challenge, you can explore “buy before you sell” mortgage options that allow you to secure financing for your new home without having to sell your existing property first.
Buy Before You Sell Mortgage Options
Buy Before You Sell / Bridge Loan: A bridge loan is a short-term loan that provides temporary financing to help you purchase a new home before selling your current one. These loans are typically interest-only and have terms ranging from six months to a year. The loan amount is based on the equity you have in your current home, and you’ll need to pay off the loan once you sell the property by either using proceeds to pay off the loan, or refinancing the loan into a traditional mortgage.
- Contingent Offer: A contingent offer is when you make an offer to purchase a new home that is contingent on the sale of your current property. This strategy can help you avoid paying two mortgages at the same time, but it may not be as appealing to sellers, especially in competitive markets.
- Piggyback Loan: A piggyback loan involves taking out two separate mortgages for the same property. The first mortgage typically covers 80% of the property’s value, while the second mortgage covers the remaining portion. This strategy can help you avoid paying private mortgage insurance (PMI) and reduce your down payment requirements.
- Rent-Back Agreement: In a rent-back agreement, you sell your current home but continue to live in it as a tenant for a specified period, allowing you time to find and purchase your new home. This option can give you the financial flexibility to secure financing for your new home without having to juggle multiple mortgages simultaneously.
Finding the Right Buy Before You Sell Lender
When searching for the right lender, it’s crucial to compare interest rates, fees, and loan terms to find the best fit for your financial situation. Look for a lender with experience in handling “buy before you sell” mortgage options and a solid reputation for excellent customer service.
By understanding the various mortgage options and strategies available, you can make an informed decision and successfully navigate the process of buying a new home before selling your existing one.
Additional Tips for Success
Work with a Real Estate Agent: A knowledgeable real estate agent can guide you through the complexities of the “buy before you sell” process, helping you make informed decisions and negotiate favorable terms on both transactions. They can also provide valuable insights into market conditions, pricing strategies, and the best way to time your purchase and sale.
- Be Prepared Financially: Before diving into the “buy before you sell” process, ensure you have a clear understanding of your financial situation. Calculate your monthly expenses, debt-to-income ratio, and the amount you can afford for a down payment on the new home. You should also consider the potential impact of carrying two mortgages temporarily and the costs associated with maintaining your current property until it sells.
- Monitor the Market: Keep a close eye on the local real estate market and trends. Familiarize yourself with the neighborhoods you’re interested in, and be prepared to act quickly when the right opportunity presents itself. Having a good understanding of the market conditions will help you make better decisions during the “buy before you sell” process.
- Have a Backup Plan: While exploring various mortgage options to buy before you sell, it’s always wise to have a backup plan in case your existing property takes longer than anticipated to sell. Consider options such as renting out your current home or adjusting the asking price to make it more attractive to potential buyers.
- Stay Organized: Juggling the purchase and sale of two properties can be overwhelming. Stay organized by keeping track of important documents, deadlines, and appointments. Use checklists and calendars to manage your time effectively and ensure a smooth transition between homes.
Buying a house before selling your current one can be a complex process, but by exploring various mortgage options and working with an experienced lender, you can make this transition smoother and more manageable. Hurst Lending is a trusted lender specializing in “Buy Before You Sell” mortgage solutions, and their knowledgeable team can guide you through each step, ensuring you make the best decision for your unique situation.
- Investopedia – Bridge Loans: https://www.investopedia.com/terms/b/bridgeloan.asp
- NerdWallet – Home Equity Loans and HELOCs: https://www.nerdwallet.com/article/mortgages/home-equity-loans-helocs
- Bankrate – Contingent Offers: https://www.bankrate.com/real-estate/contingent-offers/
- The Balance – Piggyback Loans: https://www.thebalance.com/what-is-a-piggyback-80-10-10-mortgage-1797787
- Zillow – Rent-Back Agreements: https://www.zillow.com/blog/what-is-a-rent-back-agreement-224312/
In addition to being one of the founders of Hurst Lending, I am also an attorney and real estate investor. I have a portfolio of residential and commercial properties. I have been helping our customers buy, sell, and refinance their homes since 2000. Our suite of industry-leading offers helps solve many common situations faced by homeowners and real estate investors. Have you ever experienced the frustration of trying to buy before you sell; Losing your dream home in a bidding war; Trying to obtain a No-Seasoning Cash-out loan; Being unable to get a mortgage because your new or old house needs modest repairs; or simply because you prefer using our funds to close quickly without having to liquidate other investments? Our Industry-leading suite of short-term loans solves these issues. We also offer a suite of real estate investor loan products and a full suite of conventional, VA, FHA, construction and traditional home loans.
Please feel free to contact me directly if I can help provide a loan for your next purchase or refinance, or even if you just want advice on how to get started or expand your real estate investing activities.
Scott E. Bialek
Co-Founder, Hurst Lending
*Disclaimer: This article is intended for informational purposes only and does not constitute legal, financial, or professional advice. Consult with a licensed professional before making any financial or real estate decisions.