When buying a new home and trying to sell an existing one, there’s always the chance of potential overlap of owning two homes at one time. If you have a hefty savings account, this balancing act might not bother you much. However, most homeowners are worried about their ability to pay a mortgage, utilities, taxes, and insurance on two homes at one time.
Here are some options for buying and selling a home at the same time. Work with a trusted real estate agent who knows your specific situation to decide which option might be best for you when moving from one home to another.
Home Sale Contingency
Probably the most common tactic for buying and selling a home simultaneously is a home sale contingency. This contingency adds a stipulation to the contract that a buyer must sell and settle his or her existing home before the purchase of the new home is final. It is used if the buyer has not yet put her or her house on the market but wants to put in an offer on a new one.
Usually, the seller is able to continue to market the home through an added kick-out clause, but the buyer is given first right of refusal if another offer is made. The buyer can then remove the contingency within 72 hours, or risk having an offer from another accepted by the seller and losing out on the home. The drawback of a home sale contingency is that it may make your offer less desirable to sellers. This option is typically most successful in a buyer’s market since the seller is more willing to put up with additional hoops to jump through.
A bridge loan is a short-term loan by a bank meant to cover the time between purchasing a new home and selling an existing one. The loan allows you to pay off the mortgage on your current home in order to purchase a different one. Then, when your old home sells, you pay off the bridge loan. These loans can be a great short-term solution but they often carry high-interest rates. They also have very specific terms and you can only hold the loan for a short period of time — you’re still on the hook even if your agreements don’t go as planned.
Similar to the home sale contingency, an extended closing is something you work into a contract when purchasing a new home. You may add a longer closing time than the standard 30-45 day period. This is especially useful in a buyer’s market where a seller may be more open to additional contingencies added to the agreement.
By extending your closing date, you give yourself more time to sell your existing home. If you think you have a pretty good chance of selling your home fast, this option would be a good one to consider.
In a seller’s market, a rent-back contingency is an option. After a buyer purchases your home, you can try to negotiate to rent it back for a few months until you are able to find and have an offer accepted on a new one. While this can sometimes work out, it doesn’t work well in a buyer’s market and is contingent upon a buyer not having to move in immediately for reasons of their own, like their own home sale contingency.
Home equity lines of credit (HELOCs) are lines of credit taken out on an existing home. Keep in mind that a bank will often only loan out 80% loan-to-value (LTV) and takes into account any existing mortgages. For example, if your home is worth $200,000, an 80% loan-to-value is $160,000. If you owe $80,000 on an existing mortgage, your bank may approve you for a line of credit for $80,000.
You can use HELOC funds for a down payment on your new home and then pay back the balance after your home sells. If you think you may take advantage of a HELOC, make sure to plan ahead and apply before listing your home. Most banks won’t approve a HELOC on a home that is already listed for sale. This loan is especially useful if you have considerable equity in your home, either through the appreciation of the home since you purchased it or you having paid down the mortgage over time.
Find an experienced agent to help you navigate the complicated contracts, paperwork, and negotiations involved in the homeselling or buying process, especially when dealing with any clauses or changes to your contract.
If you work with a Clever Partner Agent as a seller, you’ll pay much less in commissions. Partner Agents offer the same full service as other agents but have agreed to work for a flat fee of $3,000, or 1% if your home sells for more than $350,000.
As a buyer using a Clever Partner Agent, you may be able to get up to $1,000 back after the close with a Clever home buyer rebate. Home buyer rebates (or commission rebates) are when a real estate agent who’s helping their clients buy a home gives a portion of the commission they receive from the seller back to their client.