So you need to sell your house in order to buy a new?
You may find yourself in the position where you have outgrown your current home and are ready to "move up." While the prospect of a bigger house with more space is exciting, the logistics of getting there when you need to sell your current home often puzzles a prospective buyer/seller. Below are a few things to consider when you need to sell your house to buy a new one.
Is it a seller's market or a buyer's market? It is currently an aggressive seller's market. It will likely be much easier to sell your current home than to find a home you love (due to low inventory) and get an offer accepted (due to fierce multiple offer competition).
How much equity do you have in your home?
How much cash do you have on hand to finance your new purchase?
What is your timeline?
Buying before selling:
PROS: you know where you are moving next, less rushed, more control over timing, no lag time between homes
CONS: two mortgages, having to come up with a downpayment, financial stress
Bridge loan: A bridge loan is a short-term loan used to bridge the gap between buying a home and selling your previous one. If you want to buy before you sell, you don't have the profit from the sale to apply to your new home's down payment. A bridge loan uses the equity from your current home to help you make an offer on a new home without selling first. Because this is a short-term loan, the interest rate will be higher than a traditional mortgage rate.
Home equity loan or line of credit: This allows you as the homeowner to borrow money for a down payment by leveraging the equity in your current home.
401k loan: You may be able to borrow against your 401k or other investment accounts.
Contingency: You may write an offer on your new home with a contingency to sell your current home. Although this is very advantageous to the buyer, this is an unattractive contingency to a seller; and a tactic best used in a buyer's market.
Selling before buying:
PROS: less financial stress, frees up cash, you know how much you're netting from the sale of your home
CONS: may feel rushed to buy a new property, may move twice
Ask for a longer close of escrow: You may ask potential buyers to provide you with a longer close of escrow, so you have more time to identify and close on your replacement home
Ask for a rent back: You may ask potential buyers to provide you with a rent back after the close of escrow, so you have more time to identify and close on your replacement home
Consider a short-term rental: After your home sells, you may consider moving into a short-term rental to avoid feeling rushed with purchasing your new home.
Your timeline, financial situation, and goals will dictate which route is best for you. As always, it's always important to consult not only your realtor but your financial advisor, lender, and CPA to come up with a game plan.