Most of us have been through the roller coaster ride while finding our next home before selling our one. You are almost ready to buy a new home, and you also start your search for that, but soon you hit the realisation that you will have to sell your existing house to be qualified for the new mortgage. In your mind, you have thought off that your current home will sell quickly, but it all depends on the current real estate market rates which hardly anyone can predict. So, to stay off the roller coaster, there are a few considerations you need to keep in your mind which will help you in finding your next home before selling your home.
There are a few Pros and Cons of finding your next home before selling your home.
Pros: When there is reduced inventory, houses sell quickly so before another person grabs the chance, you need to grab it. There are high chances that your home will also sell soon, making the scenario more fascinating in such a situation. With the right price, you can pay for two mortgage payments in a short span when you already know that the house will be bought by someone else if you wait for more. Luckily if you have more reserves, you can also renovate your existing home by making necessary improvements.
Cons: Finding your next home can be stressful if you are selling your house forcibly at a lesser value than expected so that it can be sold quickly. Now, if your current home doesn’t sell quickly, there would be a lot of financial pressure on your mind to carry along two mortgages, bills as well as taxes of both the homes simultaneously. Moreover, if you get a mortgage approval, you may have to pay higher interest rates because of the risks involved.
Factors to be considered:
First of all, you need to have a detailed look at your finances, especially your liquidity. As far as you can avoid it, make sure you don’t touch upon your investments as they are interest-bearing accounts. You also need to know the housing market in your area correctly with all the details. You need to check the approximate rates per square foot and the rates at which houses similar to your sell in the area. The rate can vary definitely because no two houses can be similar. But you will get a rough idea of the amount you need to pay and how long you need to anticipate with the mortgages.
Additionally, lowering the prices of your homes will help you in selling your current house quicker as the competition, and the right price will attract buyers quickly. This means you will sacrifice money on the front end to save money after that.
Few Options you should consider while Buying before Selling:
- Propose a contingent offer:
This is only when you are buying a new home by paying cash. Such home contingencies are based on funding approvals. The seller can either accept or decline your proposed offer. Contingent offers refer to telling the seller that you will be buying that particular home if and when you get finances on hand or sell yours. The seller can also specify the offer saying that it will be valid for only a specific period. Meantime, if you are unable to make your arrangements for the finances, or if your home did not sell in that time frame due to whatsoever reason, they can also cancel the contract accordingly and return your money.
Moreover, if in between, a non-contingent offer comes in the picture, the seller can give you around 48 hours approximately to decide whether to buy that house or not and if yes, pay during those 48 hours. So, you are on the top of the list of buyers unless someone comes up with a better offer than yours and you are still not capable of buying. The disadvantage for the seller is that such proposals involve too many risks for them. The buyers’ disadvantage is that it puts them under extreme pressure and may be unable to make the smartest financial decision.
- Securing Cash to make All-Cash Offer:
Cash offers mean that you need to pay your house’s full price through cash, for which you need to have enough money with you. It’s a tough endeavour indeed. Prices of homes in the U.S. are approximately $240K, so it becomes challenging to pay such amounts in cash. Your company can help you out with this. They can enable you to use their reserves to secure your new home. So, they will pay the price for the home on your behalf, and you can pay them back when your current home is sold as soon as possible. Thus, you can secure your mortgage on the newly bought home. This option helps you in buying your new dream house according to your timings, without worrying about how you will sell your current one. You may have to pay penalties and fees if you reduce your interest-bearing accounts and slow down interests earned.
- Bridge Loans and HELOC:
Bridge loans are an alternative option to this if you have sufficient liquid assets to pay for the loan money that the bank gives you. But most of the time, banks are hesitant to provide such loans because people don’t have enough liquid assets. Plus, these loans have too high-interest rates. Banks can also help you with HELOC (Home Equity Line of Credit) if you wish to buy a new dream home. The bank sets the credit limit, which is similar to a credit card, whereby you can cover all our costs. Once your existing house sells, you can pay back all the used money to the bank. On failing to do so, the bank has the right to forfeit your properties.
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