Buy or Sell First?
Buying Before Selling
Buying a house before selling your current home is an attractive option for many. It allows you to move at your own pace and ensures you have somewhere to go once you sell your house. However, this isn’t necessarily a feasible option for many as you’ll need a source of funds for your down payment, and potentially have to carry two mortgages for an extended period.
You also risk the market changing in the time between when you buy your new house and when you try and sell your current house. These factors can add a lot of financial strain to the situation, even if it alleviates some of the logistical ones.
Selling Before Buying
Buying a new home is an exciting time, but can get complicated if your home hasn’t sold yet. Getting the timing right between selling your current home and purchasing a new one doesn’t always line up and can cause great stress. Common scenarios include:
- Not having the capital to buy a home without first selling
- Finding your dream home before being ready to sell
- Carrying two mortgages while trying to sell your current home
- Having to sell your home first and face renting while looking for a new home
- The market heavily favors buyers vs sellers
- Inability to qualify for a new mortgage unless the current one is paid off
- Coordinating the move schedule between multiple buyers and sellers can be a logistical nightmare
Financial Options when Buying and Selling a Home at the Same Time
Your financial situation can have a huge impact on your decision-making when it comes to the timeline of purchasing a new home.
Most people will need to leverage their existing equity to come up with a down payment for the new property. This can put a huge strain on making sure the timelines match up so you’re not left losing the new property or without a place to live while searching for a new home. This stress is compounded if there are external timeline factors to keep in mind like starting a job in a new city.
Getting your home sale-ready may also be a source of financial strain. A home that needs repairs will be harder to sell as is, as it may be unattractive. Further, you will need to disclose any issues with the home to new buyers which can cause interested parties to hesitate or disregard your home as a viable option.
The best way to ensure you’re in the best position possible is to prepare by consulting a real estate agent about your local housing market as well as the market you are interested in. You should also speak to a financial advisor/ mortgage broker to find out what is feasible given your financial situation. They should be able to paint a picture of what your options are, and the pros and cons. A few options may include:
Bridge Loan
You could consider getting a bridge or swing loan. A bridge loan acts as a temporary source of funding until you can get a mortgage or another form of permanent financing. The terms and conditions of these loans can vary based on providers, so it’s important to do your due diligence. Variations include:
- Terms which can be as short as 6 months while others are a few years.
- The frequency of repayment can vary between monthly payments or lump sum/ end-term payments.
- The interest rate charged, though most bridge loans are slightly above the prime rate
- Whether you’re borrowing to pay off your existing mortgage or if you’re using the loan as a second mortgage to finance the down payment.
Home Equity Line of Credit
A HELOC, or a Home Equity Line of Credit allows leverage against your current home for a loan. HELOCs are attractive because you're often only on the hook for the interest during the “draw period”, after which you’ll enter a repayment period and will need to make regular payments against the principal and any remaining interest.
To qualify you will need to have equity in your home, and borrowing against your home means that falling behind on payments could result in foreclosure. You’ll also need a minimum credit score in the mid-600s. Also consider that HELOCs usually come with variable rates, which can go up or down depending on the market.
You’ll need to plan as getting approved for a HELOC may take some time, and you won’t be eligible if your house is already on the market.
Contingency Offer
A contingency offer happens when you make an offer on a new home, but add in the caveat that the sale is only valid if you can sell your existing home. There is a risk in doing this as the sellers of the new home may not accept an offer with a contingency. This is because in a competitive market, a contingent offer is not as attractive to the sellers as a non-contingent offer. If there are many buyers making offers on a property, the seller will likely choose a non-contingent offer since it will involve less risk of cancellation. The timeline to sell your home also tends to be quite short (a few days to a few weeks), which can be a challenge if your home is not sale-ready.
Delayed Closing
You may also try and negotiate a delayed closing date which would give you more time to sell your home. However, this is inherently riskier than a contingency offer which gives you a clear “out” if you’re unable to sell your home. With a delayed closing, you’ll still be on the hook for breaking an agreement, or find yourself in the position of having to carry two mortgages.
Sell to a Cash Buyer
A cash buyer like Haven Homebuyers will purchase your home as is. Contact us today and get your quote within 24 hrs and close on your home in as little as 5 days. We also allow you to pick your closing date, which gives you control and flexibility depending on where you are in your journey to buy a new home.
Timing Challenges in Buying and Selling a Home
The current climate poses challenges to those looking to purchase a new home. The main factors are:
- High Housing Prices
- Low Inventory
- High Interest Rates
High housing Prices
According to Redfin, home sale prices have risen 10.3% year-over-year, and California remains a seller’s market as the prices continue to rise. In Southern California, the median sales price has increased as much as $115,000 when comparing Jan 2024 to Jan 2023. The 2024 median prices for SoCal are as follows:
- Los Angeles - $800,000
- Orange - $1,065,000
- Riverside - $550,000
- San Bernardino - $475,000
- San Diego - $802,500
- Ventura - $779,000
Low Inventory
Despite the high price, fewer homes are being sold. This can create challenges in purchasing a new home as the inventory of homes being sold is slim due to homeowners not wanting to give up previously obtained interest rates. For many, it does not make financial sense to sell since both rents and interest rates continue to be high.
High Interest Rates
High-interest rates have been a source of much conversation over the last few years, as 30-year fixed mortgage rates soared to a high of 7.79% in Oct 2023. The rates are starting to drop down, but it’s speculated that we won’t see any substantial change until Summer 2025. That along with rising prices makes many monthly mortgage payments untenable for people.
How To Address Timing Challenges
The same factors that make the climate hard for buyers also make it hard for sellers. The high prices can dissuade many buyers from looking for homes in the current market, and while the median days on the market are decreasing, it’s certainly not the low we saw over the Covid years. The current average days on the market remain around 40-45 days in SoCal.
This can make it difficult when planning a transition between homes as it may take quite a while to both find a new home and sell your existing home. You do have a few options when it comes to challenges specific to timing.
Be Prepared
Make sure you do your research ahead of time. Consult a realtor and a financial advisor to ensure your home is marketable and your finances are in order. This will help eliminate any unnecessary delays in the process. This will likely require work on your end to clean and repair your home and apply for loans.
Rent Back Agreement
A rent-back agreement is a temporary rental agreement between the buyer and seller that allows the seller to stay in their home and rent from the buyer after the closing date. This allows sellers more time to find a new home and move out while getting the benefit of having sold their home and gaining the equity back. It also gives the buyer a bit of income for the first few days or months.
Rent Your Home
Another strategy is to secure your new home, and then rent your current home for some time. Southern California is one of the hardest places to find a rental right now, and the limited inventory means that you’re likely to find a tenant quickly. The major pro is that you’ll have income to cover the mortgage. The major con is that you’ll need to be a landlord for an extended period (likely at least a year)
Sell to a Cash Buyer
At Haven Homebuyers we let you choose your closing date, giving you ultimate control over your timeline. We won’t require you to stage or repair your home, which gives you the freedom to purchase a home on your timeline and then close with us. You can receive a no-obligation offer within 24 hours and close on your home in as little as 5 days.
We also offer rent back for up to 29 days, giving you the financial means to close on your new home and an extra few weeks to move.
Conclusions
Buying and selling a home can be stressful with multiple moving parts, and deciding on a path forward can be overwhelming. We would love it if you made Haven Homebuyers part of your exploration and see if our no-obligation cash offer and flexible closing options are the right fit for you.
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