From paying down your mortgage and increasing home values, you’ve got a nice amount of equity in your current home that you’d like to use to buy a new home, but there are challenges associated with selling and buying at the same time unless you’re able to comfortably purchase your new home before selling your current home. The following are a few strategies that can help you bridge the gap.
Lease Back Your Home
In this scenario, you sell your home first and let buyers know up-front that you will need to lease back your home for a period of time. Often, only 2-3 weeks is sufficient, even shorter in some situations. This will allow you to close on your current home, then have some extra time to close on your new home while you remain in your house. This is a helpful strategy that allows you to access your equity and close on the first loan before purchasing the next, only requiring one move.
Arrange for a Same-day Closing
This is the ideal situation for many reasons – you only move once, go from the old house directly to the new house and rip the bandage off quickly. While it can be done, it’s also very tricky and easily derailed.
The first hurdle is the timing of getting your house under contract, then getting into a contract to purchase the new home...and getting all parties to agree to the same closing date. That hurdle alone is tough.
Additionally, if you and your buyers are using mortgages to purchase, there is the risk that one or both loans may take longer than expected to close, thus throwing off that carefully coordinated closing date.
That’s not to say it can’t be done, because I’ve done it myself and worked with seller/buyers who’ve also been able to pull it off. If you are able to coordinate a same-day closing, that’s fantastic, but you’ll at least want to be prepared with a plan B.
Closing On Your Current House A Few Days Before Your New House
Since you'll have the assets from selling your current house available and your debt-to-income ratio is freed from the burden of that house's mortgage, this option is the easiest from a credit approval/financing standpoint, but you'll be "homeless" for a few days.
Where to stay and how to store your belongings is a big part of this plan. Portable storage containers (commonly called PODS after the most popular provider, but there are many and you should shop around) are a helpful moving tool. They allow you to load your items over the course of a few days if needed, they keep your belongings safe (you get the only keys to the lock) and they are convenient to store if needed. By using a storage container for your move, you should be able to store your items for a few days without breaking the bank. Then, you can stay with friends or family, or get a motel, hotel or vacation rental for the interim.
Even if you’re planning on a same-day closing, it would be a good idea to include this possibility as your Plan B in case the closing doesn’t go quite as planned. In most situations, it wouldn’t be more than a day or two longer, but it’s still good to be prepared.
Closing on Your New House a Few Days Before Closing Your Current House
To do this, you’d have to qualify with your lender and have enough liquid assets to cover your down payment, closing and moving costs. If you can qualify to purchase before your home closes, there are financing options that may help with the out-of-pocket costs and I will include those below.
Since you will have access to your new house first, it will give you the opportunity to move directly from your current house into your new house.
Using a Bridge Loan or a HELOC
Many home owners have an open line of credit on their home, most commonly referred to as a HELOC (home equity line of credit) and homeowners with equity in their homes can apply for one relatively easily.
BEWARE! The cardinal rule of loan approvals is to not apply for or pull any other credit before closing on your new mortgage, so you will want to be careful to plan this strategy with your lender to be certain that you’ll be allowed to use this money. If you are allowed to use this money and qualify to purchase your new home before selling your current home, then this is a helpful and affordable strategy for accessing the cash you’ll need to close on the new home before your current home sale closes.
Bridge loans are short term loans that offer deferred payment of a few months, allowing home owners to get into their new home, sell their old home within a few months and not make any payments until closing. Be certain to work closely with your loan officer to be sure that you qualify to use this strategy and also get a detailed estimate on interest rate and all associated costs and deadlines.
Worth the Effort
Tampa is one of the markets where buying homes in stages works very well. Our robust, but still affordable, market makes it possible for home owners to earn equity within a few years and use that equity and stronger credit-worthiness in the purchase of their next home.
In addition, Florida’s Tax Portability benefit allows homeowners to bring their accumulated homestead savings to their new home, savings many homeowners thousands of dollars a year in property taxes.
This current fast-paced sellers market also makes it all that much easier. If you’re considering selling and buying, or if you’d just like some honest, informed help crunching the numbers, contact me today.
