The Double Challenge: Buying and Selling a Home at the Same Time
Just like true love, the course of a real estate transaction often doesn't run smoothly. The road can get especially bumpy if you are buying and selling a house at the same time. For that, you need a well-thought-out strategy and a smattering of luck.
You sometimes can buy and sell a home around the same time, but you are not going to close the two deals simultaneously. Too many people are involved to pull off that particular feat. Even if you line up the two closings for the same day, someone's mortgage company might ask for extra paperwork, or some other detail may pushe the settlements out of sync. At some point, nearly everyone has to decide whether to sell or buy first.
When You Should Sell First
The logical order is to sell before you buy. This way, you know exactly how much cash you have to spend and are less likely to overextend yourself on your new home. Plus, you may be disqualified from a mortgage unless you've sold your old home. According to U.S. News and World Report, new lending rules ensure borrowers are issued mortgages they can afford both now and in the future, and the interest cost of carrying two loans may tip the scales against you.
On the downside, selling first may force you to handle multiple moves. One option is to request a lengthy settlement period that gives you time to find a new property, though this solution is by no means bulletproof. Alternatively, you could enter into a rent-back arrangement with your home's new owner, which could allow you to stay for up to 60 or 90 days in your old home while you search for a new one, according to the National Association of Realtors.
You should absolutely sell first in a buyer's market, when inventory is high and prices are stagnant or falling. In these conditions, it is better to sell as soon as you get a reasonable offer. If you miss the boat, your home may linger on the market and sell for less than you anticipated.
When You Should Buy First
If you are financially capable, buying first has its advantages. You can move at your leisure and take the time to prepare your old home for sale. Buying first also dispenses with the hassle of renting and putting your furniture in storage.
The major obstacle to buying first is money. If you buy first with mortgage finance, you effectively carry two mortgages at the same time until you can sell your old home. This puts pressure on homeowners to sell their current property quickly; many accept a heavily discounted "fire sale" price just to get their mortgage repayment down to a reasonable level.
With that said, in a seller's market, when homes are scarce and prices are rising, you should sell first. In these conditions, shouldering two mortgages may be worth the risk because your old property will probably sell quickly.
What If Neither Option Sounds Appealing?
The final solution is to attempt buying and selling a house simultaneously. Pulling this off is no small feat of engineering.
To execute a simultaneous closing, schedule the sale and purchase closing and possession dates for the same day—then, be prepared to move mountains to stick to the timing. One option is to add a contract contingency, a device that can synchronize the dates by making the purchase contingent on the sale, or vice versa. Essentially, one of your contracts will specify that closing is delayed until the other deal closes.
However, home sale contingencies are unpopular. Few buyers and sellers are willing to accept an open-ended period for closing, which Investopedia notes can be risky. However, you might garner interest if you can show you're working toward a simultaneous closing and that any delay will likely be minimal.
If you can't swing a contract contingency, you will likely have to consider bridge financing, a financial product that tides homeowners over during the period between buying and selling a house. With bridge financing, you take out a short-term loan on the equity in your old house, use it to make the down payment on your new house, and repay the loan when your first home sells.
However, bridge loans can be hard to qualify for, since you need a high amount of equity in your current home and enough income to make both loan repayments indefinitely. Interest rates can be steep, too—typically about 2 percent above the average fixed-rate product, according to The Truth About Mortgage. But it's an essential weapon to keep in your arsenal if there's any risk of getting stuck with two houses for a short period.
The Bottom Line
When deciding to buy first, sell first, or push for a double closing, there's no right or wrong answer. Rather, it depends on whether you are in a buyer's market or a seller's market, whether you can afford a bridge loan, and where you'll live if you get stuck in limbo. As always, your real estate agent can give you advice on which option is best and help make the process as seamless as possible.
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