How Do I Buy a Home When I Own a Home Now?
Searching for a new home can be a little tricky when you are living in one that needs to be sold before you can close on the new home. Homebuyers (and builders) face the choice of selling before buying, or buying before selling. Either way it can get messy, so it’s important to understand what options are available.
Tips for Managing the Homebuying Process
Whether you decide to buy and then sell or sell and then buy, general rules apply to both scenarios. If you’re looking for a new home, following these guidelines will make either process less stressful.
1. Engage in research.
This applies every time you are in the market for a new home, whether you intend to build new construction or go the resale route. Ask questions about the house itself, the neighborhood and surrounding area, the amenities included with the house and neighborhood, the included appliances and major home systems, etc. The more you know about what you want in a home and the relative costs of such items, the easier it will be to identify a significant value when you see it.
2. Assemble a team of professionals.
Particularly if you are building or renovating a home, you’ll want to gather a team of industry experts you can count on for honest, reliable advice and service. Start with an experienced real estate agent. From there consider adding a professional architect, contractor, and/or interior designer to help navigate the process. Professionals are designated as such for a reason; don’t underestimate their worth.
3. Organize and implement a budget.
Perhaps this should be at the top of the list, as–without reliable information at hand regarding your personal finances–you won’t get far in either buying or selling a home. Determine if it makes sense to buy or sell now, based on the amount of equity you have in your current home, the amount of money you have saved for a down payment, how much you can afford for a monthly mortgage payment, and whether you’re looking to move to a larger home, or downsize. Laying the numbers out in a spreadsheet will be one key factor in helping you determine your buying or selling price range.
4. Consider market factors.
Examine the overall housing market in the area where you want to buy, looking at trends over the past year or two. Based on this information, is your home likely to increase or decrease in value over time? This is one place where the professionals we talked about earlier can really be helpful.
5. Develop a backup plan.
The old adage to not “put all your eggs in one basket” holds true in the housing market. Having a backup plan (or two) will not only keep frustration at bay, but also retain sound financial footing. Remember–in real estate, nothing is a final until the deal has closed and all parties have signed.
Options for Buying Before Selling
What if you need to buy a new home before selling your current one? Don’t panic! Here are some options:
1. Get motivated to sell!
If the home you are selling is in a well-marketed area, you may not have much to worry about. If making payments on more than one home at the same time poses a strain on your budget, however, you may wish to consider lowering the listing price, including a flooring or paint allowance, or including some other buyer enticement to hasten a contract and closing.
2. Buy with a sales contingency.
A sales contingency states that if your home doesn’t sell by a pre-determined date, you are not contractually obligated to buy the house on which you offered. This protects you, as the buyer, from ending up with two mortgages.
3. Purchase with a bridge loan.
A bridge loan is a high-interest loan provided in the short-term for the down payment of your new home, then repaid immediately after your current home sells.
4. Use a home equity loan to buy the new home.
Similar to a bridge loan, a home equity loan uses the equity you have built up in your current home as collateral on a new loan.
5. Consider Rental Income.
If your financial situation allows, you may wish to consider keeping your current home as a rental property. Depending upon market conditions, you may be able to rent the home for more than enough to cover the existing mortgage payment. You need to take into account the ongoing upkeep and maintenance issues, which could either be managed by you as the landlord, or outsourced to a property management company.
Options for Selling Before Buying
On the other hand, if you happen to sell your current home before finding the perfect one to purchase, you have these choices:
1. Act fast!
Working with a professional real estate agent pays off here, as he or she can cull through the many listings, based on your search parameters, and act quickly to book appointments to tour the homes you like best. In an active sellers’ market be prepared to compete against multiple offers on a given home. If, on the other hand, you’re fortunate to be purchasing in a buyer’s market, you have the luxury of taking your time to negotiate the best deal.
2. Extend the closing process.
If your home hasn’t sold by the time you have found a new one, you can request an extended closing date, providing you more time in your current home before closing on the new one.
3. Include a rent-back clause.
A rent-back clause in the sales contract allows the seller to rent their home from its new owner for a specified period, giving them more time to find and purchase a new home. Rent is typically a pro-rated amount calculated on a per-day basis.
How Can Sheffield Homes Help?
When starting the homebuilding process with Sheffield, you will be asked for an earnest money deposit at contract signing–typically anywhere from $8,000 – $15,000 on a new-construction home. Depending upon the size of the home (and the weather), the construction process takes–on average–seven to ten months, at which point the remainder of your financing needs to be in place for closing. At Sheffield Homes, we have more than 40 years of experience to help guide you through the home building process, every step of the way. We’d love to build your dream house! Call us today at 303-420-0056 to begin planning your custom home in the Denver metro area or in northern Colorado.
