Making a move from one house to another is often a necessary step in life, whether you’re downsizing or opting for a larger space. It can be a daunting process, but with a bit of knowledge, you can sell your home and move to the next smoothly.
Options to Consider If You Want to Buy a Home But Haven’t Sold Your Current Home
If you’ve found your dream home and want to purchase it before someone else makes a bid or are moving to a new area after accepting a job offer, you may find yourself in a situation where you’d like to purchase a home, but you have yet to list or sell your current home.
You have several options when deciding how to proceed, with both advantages and drawbacks to each.
- Make a Sale and Settlement Contingency Offer
Adding a sale and settlement contingency clause to your offer’s terms allows you to buy your new home only if your current one sells. If the clause’s term specifies a given timeframe for you to sell your home, and you aren’t able to find a buyer for your old home in the allotted time, the terms can state that the offer and contract for the new home are voided.
A home sale contingency allows you to enjoy a variety of benefits.
- It gives you more time to sell and settle.
- You won’t have to worry about owning two homes at once or holding two mortgages.
- You can sell your home and move to the next without needing to secure a place to stay in between transactions.
However, a contingency offer also has some drawbacks.
- It reduces your negotiating power in a competitive market and gives you a limited amount of time to find a buyer.
- To remain a competitive buyer, you may have to offer more for your new home than if you bought the home without a contingency.
- Rent Out Your Current Home
Even if your home isn’t selling as quickly as you’d like, you can still make a profit by renting out your current house while it’s still on the market. If you can find renters who will pay more per month than the costs of your monthly mortgage and home upkeep, renting out your current home could be a good option.
Renting out your current home offers several potential pros if you’re on a budget.
- Renting can make the most financial sense if you need extra income while you’re waiting for your old home to sell — as long as the renters pay more than what you owe on your monthly mortgage and in other expenses.
- You can keep your property to sell later at a potentially better price if the market is expected to rise.
The cons of renting out your home include:
- Keeping the home clean and staged while holding open houses is far more difficult when renters live in the home.
- You’ll need to have a down payment saved up before buying your new home since you won’t be able to use the money from the sale of your first home.
- Renting out your home means you now have added responsibilities as a landlord.
- Use a Sale-Leaseback Agreement
Sale-leasebacks allow you to sell your old home but remain there as a tenant until you settle on your new home. The terms of the lease — such as monthly rent and length of the leaseback — are agreed upon by you and the buyer as part of the negotiations.
A sale-leaseback transaction offers several benefits if you’re not quite ready to move out of your old home.
- If you’ve already had your offer accepted on your new home and know the closing date, a sale-leaseback could be an effective option for a smoother transition between homes.
- If it’s a booming market at the time, it may allow you to take advantage of selling your home before the market declines.
You’ll also want to consider the cons, though, before choosing a sale-leaseback agreement as an option.
- While this option gives you more time to close on the sale of your home, you’ll still need to work quickly to avoid paying both rent and a mortgage for an extended period of time.
- Your monthly rent may be much higher than your mortgage, and you won’t be building equity.
How to Get Money for a Down Payment Before Selling Your Current Home
Buying before selling gives you the advantage of taking your time to find your dream home and not rushing into a new house just because your old one sold. It may also eliminate the process of adding an additional temporary move during the interim period, allowing you to simply move from one home to the other.
What makes this tricky in some situations is that you won’t have the money from selling your current home to put a down payment on your new home. This means you’ll either need to budget and save your money or borrow money for a down payment until your original home sells.
If you’re considering borrowing money for a down payment, you can contact one of our mortgage representatives to determine what loan choices are available to you, and what might be the best fit for your specific situation.
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We want to help you reach your financial goals during your move from one home to the next. Check out our mortgage options today. And be sure to review our other money management tips for more information on home buying.