Buying and Selling a Home at the Same Time

Selling your home while buying a new one is a daunting task. If you buy before selling, you run the risk of owning two homes. If you sell before buying, you could end up homeless. It’s a puzzle that comes with stress from all corners, from making sure your children get enrolled in school on time to avoiding spousal warfare over whether to accept an offer.

Here are some strategies to help ease the transition.

If you sell your home first, you’ll have the cash needed to make the transition, but you’ll be homeless until you’re able to close on the new property. In some cases, you may be able to stay in your existing home by renting it back from the new owners. If this isn’t an option, you’ll need to find temporary quarters: rent an apartment, stay in a hotel, move in with friends or family.

If you opt to own two homes at the same time:

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 promissory note, secured by a second mortgage (also called a 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 the time when you close on your new house and when you get your money from the sale of your old house. 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.

However, bridge loans can be expensive (interest rates are generally above the prime rate), and the loan only lasts up to six months. In addition, bridge financing is not easy to qualify for. You need enough income to pay both mortgage payments indefinitely (using a maximum of 44% of your income to make the mortgage payments).

This entry was posted on Wednesday, November 19th, 2008 at 6:13 am and is filed under FSBO. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.