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Buying and selling at the same time? Here’s how to prepare.

Reading Time — 6 minutes

June 9, 2022

Reading Time — 6 minutes

June 9, 2022

By David McMillin

While it’s a common move, buying and selling a home at the same time isn’t easy — especially in today’s housing market. If you’re aiming to sell and buy simultaneously, you have one foot in the lucky shoes of a seller who could reap the benefits of the surge in home values in recent years. However, your other foot is in the unfortunate position of being a buyer who could struggle to compete.

“One of the main challenges of buying and selling real estate at the same time is the lack of inventory in today’s market,” says Janelle Seitzer, a real estate agent with RE/MAX Advantage Plus in Minnesota. “Sellers are looking for non-contingent offers with excellent terms.”

So, if your offer to buy a new home is contingent upon selling the one you currently have, you can quickly lose out to another buyer who has no additional requirements.

Should you buy or sell first?

You typically won’t be able to buy and sell at exactly the same time. So which step is better to take first?

If you don’t have cash set aside in your bank account, selling your home first tends to be the move that’ll help you sleep better at night. By selling your home first, you’ll know how much money you can take from that transaction to put toward buying your next property. Fifty-six percent of repeat homebuyers use equity generated from selling their primary home for part of their down payment for a new home, according to the National Association of Realtors.

On the flip side, buying a new home first comes with a big benefit: You’ll eliminate the stress of not having a home.

However, suppose you buy a new home first and you’re stretching yourself thin financially, you might put yourself in a position of needing to sell your existing home immediately — and for a lower price than you might be able to get if you can wait for multiple offers.

Begin by evaluating your finances, then estimate how long it’ll take to sell your home and think about how long it could take to close on your new property. Timing is everything to avoid two potential conundrums: figuring out where to live when you don’t own a home or figuring out how to pay for owning two homes at the same time.

How to prepare for selling, then buying

If you’re planning to sell your home and immediately buy a new one, you’ll want to have a firm plan in place for two smooth transactions. These tips can help:

· Find the right real estate agent. A real estate agent can help you navigate the challenges of buying and selling at the same time. Your agent might also be able to help you find properties that haven’t been listed yet. “I’ve knocked on doors and sent out letters to homeowners on numerous occasions for my clients who are in this situation,” Seitzer says.

· Get a sense of how much your home is really worth. Your agent will be key in helping you understand comps in the area, so you set the appropriate list price for your property. You’ll also have a reasonable expectation of the amount of money you can expect from the sale.

· Figure out how much you’re going to need to buy a new place. Put together a budget for your next purchase. Think about what you’re willing to compromise on. Are you set on a specific neighborhood? Are there certain amenities you can forgo? The current housing market is the hottest in recent memory. If you can be flexible, it’ll make a difference for your finances.

· Have a plan for the interim period. If you’re going to sell before you buy, you’ll need a roof over your head during the in-between time, and you’ll need to figure out what to do with your belongings. Will you move your stuff into a storage unit and stay in a hotel for a few weeks? Will you need to book a short-term rental for a few months while looking for a new home? You might also consider a rent-back contingency, which means you can rent the property from the new buyer for a certain period of time after closing.

· Sell your home, and start looking for your next one. When you put your property on the market, you’ll hope the right buyer comes along quickly — but don’t feel like you need to have the same speed when looking for your next place.“Patience and persistence is key while navigating today’s real estate market,” Seitzer says.

Ways to finance a home purchase before selling

Selling before you buy isn’t always possible — if you’ve found your dream home, you might not be able to afford to wait.

However, there are alternatives to draining every dollar in your bank account for a down payment. Consider these convenient ways to come up with the necessary cash before you’ve managed to get to closing day on your current home:

Home equity line of credit (HELOC)

A HELOC allows you to borrow money based on your existing home’s value. With this option, you’ll take out a line of credit against your current home to help cover the down payment for your purchase. Then, when you sell your house, you’ll be able to use part of the profits to pay off the HELOC.

Bridge loan

While HELOCs are used for a variety of purposes — homeowners often use these to pay for home improvements on a house they don’t plan on selling, too — there is a loan product specifically designed for the buying-and-selling-at-the-same-time predicament. Bridge loans are short-term loans that help provide the “bridge” between your current home and the money for a down payment on your new one.

Be an all-cash buyer without actually having the cash

There are new options to help homebuyers submit extra-competitive offers, too. For example, Opendoor has a cash-backed offer program, which essentially makes your bid to buy a home as good as paying with all cash. Some mortgage lenders and real estate brokerages also offer similar options. With these programs, you’ll still finance your purchase — you’re simply getting a company to help you look more appealing to sellers.

This article is also posted on Bankrate here.