As we head into the new year, real estate will be on lots of people's minds. If buying a home is on your to-do list this year, you may also have a house to sell at the same time. There are lots of moving parts in a buy/sell transaction. Here are a couple ways to structure it and the pros and cons to each approach.
Option 1: Contingent Sale: In this instance, buyers are writing offers for their new home contingent on their old home selling.
Pros: Buyers don't have to move twice as they are moving directly from their old home into the new one. Additionally, there are less fees associated because financing will likely be a typical 30 year fixed mortgage.
Cons: Offers aren't as strong in multiple offer situations. Sellers are looking for certainty so when a buyer has a home to sell their offer isn't as compelling as someone who doesn't.
Option 2: HELOC/Bridge Loans: Buyers pull out equity using a Home Equity Line of Credit or get short term financing in the form of a bridge loan so they can buy before they sell. This eliminates the need for offers to be contingent on their home selling. Bridge loans offer buyers the opportunity to buy first, move, then have 6-12 months to sell their current home. Then, the loan for the new home is refinanced into long term financing.
Pros: Buyers don't have to move twice as they can buy their new home first and move directly from their current home into the new one. Offers are stronger as offers are not contingent on a home sale.
Cons: HELOCs are quite inexpensive (you don't pay on them until you use them) however bridge loans do have extra fees associated with them. When using a HELOC to pull out equity, buyers need to qualify to pay for both mortgage payments. In the case of a bridge loan, buyers need to qualify for their current mortgage and the interest only payment of the short term bridge financing.
Option 3: Sell first then buy: In this scenario, buyers sell their current home first, get up to 60 days to rent back from the new owners of their home or move into short term housing while purchasing their new home.
Pros: Offers on new homes are quite strong because all financing is in order and buyers don't have a home to sell. Buyers know exactly how much money is in their pocket for their new sale so budgeting is easier.
Cons: Buyers may have to move twice and may have to deal with uncertainty of selling their home without knowing what they will buy.
If a home purchase or sale is in the cards for you this year, we'd love to chat with you about it and strategize your move. Don't hesitate to reach out!
