How to Handle Buying and Selling a Home at the Same Time
So you currently own a house and want to buy a new home. That means you need to sell your current one. There are a few things to consider when buying and selling a home at the same time.
The timeline of buying a new home when you have a current one to sell can be daunting to balance. Selling your old home too soon can result in having to move out before your new home is ready, and selling too late can mean taking possession of your new home while still paying the mortgage on your old one.
However, there are solutions out there that will help you to handle the task!
Start With the Conditions
Generally, when the home you’re purchasing is a new build, you’ll be buying the new home before you sell your existing one.
So, when you make your offer to purchase, be sure to include a condition that your current house is sold before you can close on the new one. This prevents you from being legally obligated to hold two mortgages if your old home doesn’t sell in time. Unless, of course, you are in a situation where you can hold two mortgages!
Bridge The Financial Gap With Your Hard-Earned Equity
Buying a new home while still paying the mortgage on your current one can create financial challenges. If your down payment, in full or in part, is coming from the equity in your current home, how do you access these funds before selling the home?
The best and most stress-free method of handling this financial transition is to take advantage of a Home Equity Line of Credit (HELOC). A HELOC allows you to access your home’s available equity temporarily to pay your down payment without disrupting your current mortgage payment and terms.
Most lenders will allow you to borrow up to 80 percent of the equity in your home, not including the amount you still owe. So if your home’s value was $500,000 and the balance on your mortgage was $200,000, you could borrow up to $200,000. You’ll have to make payments on this loan, but you can pay the balance off in a lump sum once you sell.
Just like any other loan or line of credit, your ability to qualify for this product depends on your financial status and credit score. Speak to your lender about a HELOC or other available bridge loan products to determine your best options.
Retain Good Communication With Your Home Builder
If your new home is under construction, you have some time to work with to determine when to list your current home for sale. Although the construction timeline can fluctuate a bit depending on weather, supply shortages and other factors, staying in good communication with your builder will help you understand approximately when your new home may be ready.
Once your builder has established a confirmed possession date, you’ll receive a letter with 45 days’ notice.
Watch Market Trends for ‘Days on Market’
The real estate market is often unpredictable and can change very quickly. However, one statistic to watch closely when you have a home to sell is the “days on market” for similar homes in your area. The last thing you want to do is wait to receive your 45-day possession letter and find out that the average number of days on the market for other homes is 60 days. This could mean your current house won’t sell in time to take possession of your new home.
The best way to make an educated decision on timing is to watch this trend and time your listing against the average, using the best guess from your builder on when your new home will be complete. It’s not perfect as there are many mitigating factors, but this should give you the best information from which to make a decision.
Price Your Current Home To Be Competitive
It can be tempting to list your home at a high asking price to see if you can gain more from the sale, but this can backfire if you’re on a timeline to sell. If your home is priced too high for the market, it may sit unsold for a longer period of time, creating a problem for you when it comes time to take possession of your new home.
By listing your home at a competitive price, your showings will be more effective, and your home should sell within your expected timeframe. Be sure to discuss this with your Realtor or Area Manager to take advantage of his or her experience in determining the most competitive price points for similar homes.
Explore a Rental Option
If trying to time the sale of your home is too stressful to worry about, consider listing your home early to secure the sale and asking the buyers if they’d be interested in allowing you to rent the home from them until your new home is ready.
Moving twice isn’t ideal but selling early may also allow you to ensure your home is sold prior to your new home’s possession date. You may end up with a timeline gap where you’ll need to move out of your current home before your new home is ready, but an option here would be to move your items into storage and seek a furnished short-term rental in the meantime.
If the period between moving out of your current home and into your new one is only a matter of weeks, you may wish to discuss with your builder the option of gaining early access to your new home’s garage. Instead of using a storage facility, you may be able to move your items into your new garage to save the cost of storage on top of a temporary housing rental.
Other Common Issues
There are a few other problems we’ve seen with our clients when it comes to buying and selling a home at the same time, especially when it comes to the down payment. Here are some problems (and solutions!) to help with that.
Problem: You need a down payment for a quick possession home
Solution: A bridge loan
While a HELOC can be the perfect solution for a longer build, quick possession homes are basically move-in ready (or will be ready soon).
Bridge loans are intended to “bridge” the time between selling your home and actually receiving the money on closing day. You would sell your home, take out a bridge loan to purchase the new home, and then pay off the bridge loan when you close on the current home.
Bridge loans have a short-term – usually 90 days or less – so this method works best for those on a quick timeline.
Problem: You don’t have much equity in your current house
Solution: An unsecured loan
To be clear, we love the versatility of a HELOC. It really offers homeowners a lot of options. But if you’ve only been in your current house a short time, generally you don’t have a lot of equity built. This doesn’t leave you with much to borrow against for a HELOC.
Looking at an unsecured loan could be an option. Unsecured loans tend to have higher interest rates, so you want to be sure you’ll be able to sell your home for an amount that allows you to pay off this loan. It’s not the perfect solution, but it works for those who are in a financial pinch.
Problem: You’re in the middle of your mortgage term
Solution: Mortgage portability
Some mortgages will charge you a fee when you try to pay them off early. For this reason, you should look into mortgage portability. It’s possible you’ll be able to “port” your mortgage over to a new home. The current balance will remain at the same interest rate, and the mortgage lender will add in the extra cost of your new home at current interest rates.
Related article: 6 Ways to Use Your Old Home to Your Benefit
Originally published October 6, 2017, updated May 5, 2022
About the Author:
At Sterling Homes, our mission is to provide the opportunity for affordable homeownership without compromise. Over the last 70 years, Sterling Edmonton has quickly become one of Edmonton’s most popular builders. We bring more than seven decades worth of exceptional customer service, superior design and unparalleled craftsmanship to the greater Edmonton area. As a member of the Qualico Group, Sterling Homes focuses on greater Edmonton’s finest family communities, while being able to offer some of the region’s most family friendly prices thanks to volume purchasing power for materials, trades and land. This has not only made us one of Edmonton’s bestselling, move-up builders, but also one of the industry’s most respected home providers. It is through our uncompromising commitment to our customers that we proudly deliver the Sterling Advantage – that’s why each and every home we build includes a 10-year home warranty, a completion guarantee and new home warranty excellence rating. Our Advantage is our pledge that, when you build your dream home with Sterling, we will deliver a timely, well-built home you’re sure to enjoy for years to come.
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