Buy First Then Sell

How to Move Up to Your Next Home with Ease — Week 5

My 5-part series is a “how-to” guide for moving up to your next home with as little stress as possible. Whether it’s your first time moving up or you’ve done it before, this series is a great resource. This time around, you’ve got more to think about, plan, and “get right” then when you bought your first home.

Hello again! If you’ve made it this far in my series, it must mean that you’ve got some exciting life changes ahead!

Here, I will break down what needs to happen so you don’t end up with two homes at the same time (at least for too long).

First and foremost, make sure you have completely read through this previous article in my 5-week series — The Big Move-Up Buyer Question: How Do You Buy and Sell at the Same Time? It’s the ultimate real estate catch-22.

That way you have already figured out your answer to this big question and know that “buying first” is the route you can and will take.

This article is for those move-up buyers who plan to buy their new home first, and then sell their current home. This means your lender has given you that blessed stamp of approval and go ahead to buy first, and you’re not required to sell your current home in order to finance your next one. Huzzah!

If you have managed to pull this off, let me be the first to congratulate you! Clearly you’re doing something right, so BRAVO!

Meet with a Lender for Approval

We’ve already been over this, but this is crucial. This is where you start so you can be successful. I’ve got several ridiculously awesome lenders to send your way (one that even has the most ridiculous furniture hookup that she has extended to my clients, so this is the test to see who is actually reading my posts!)

Knowing all of this ahead of time means you can move promptly with confidence when you do find a home you want to buy.

So Let’s Get Into It

I do think it is worth noting that a lot of you may even decide not to sell your current home at all, but rather keep it as a rental property, which hey if you can pull this off, I tip my hat to you. This is how you slowly start building generational wealth. I am almost always an advocate of this method.

Figure Out Your Down Payment

Lender Financing:  So since you’ve already been in communication with a lender, you know what you can afford. The lender will have done this by examining your debt to income ratio. If it’s not at a certain level — usually 45% of your income, including all debt for the new home, your current home, car loans, etc. — then you will need to sell your current home first in order to be approved for financing.

Keep in mind that you won’t know exactly how much your current home will sell for until you put it on the market and get an offer. However, you will have a general idea of price.  But, since you plan to buy a new home first, you really won’t know the exact equity you’ll get until you actually sell it.

Several Strategies to Consider: There are several different ways to get cash out of your current home or other investments you need a down payment to buy the new home.  Just because you need cash out of your home, doesn’t mean you HAVE to sell it first.

That why I can’t stress enough to my clients to think of the long game when it comes to handling finances. It makes decisions about what to do with your money much easier if you already have a long-term strategy in place.

Remember these are all options to consider, but some may be better for you than others.

• Borrow from your current home: As long as your lender can still approve you, consider a home equity line of credit (HELOC) or get a cash-out refinance to get the cash you need out of your current home and still live there.

However, keep in mind, lenders do not look favorably on this.  It may mean doing this one year and then moving forward with your purchase of a new home the following year. Timelines will generally dictate whether this is a good option for you.

• Borrow from yourself: We’ve used this one ourselves and it works well.  Depending on how much money you have saved with a financial advisor, you may be able to “borrow” those funds without having to sell any stocks.  This is a higher-level investment strategy that we can help you walk-through. It’s a great way to create your very own “bridge loan” by borrowing from yourself.
• Bridge Loans:  Speaking of bridge loans, there are several bridge loan options out there from lenders.  Not every bank will do them, but being on the inside, I have a few up my sleeve if this is the best approach for you. I will say, bridge loans have been trickier to achieve in recent years, but not impossible.  Another thing to keep in mind, bridge loans are almost always the more expensive route. You’ll pay points and incur expenses that can be avoided if you use one of the other strategies above.

How to Decide Which Strategy is best for YOU:  Let us (your lender and myself) help you figure out which route you should take. When you meet with us, we’ll look at your entire financial picture as well as your long- and short-term financial goals. That way we can recommend the best course of action for you. 

We’ll also need to rely on a lender who understands these types of transactions and can determine what is financially possible for you.  For example, we don’t want to tell you to take out a loan if it ends up not allowing you to be approved for the new home unless you sell your current one. 

Now is the time to get to work and find out what is going to be possible for you. Only your lender can tell you whether that’s possible. 

Like many good things in life, it does require some planning and preparation. I will say it one more time, but getting started early is the best rule of thumb. By working with me as early as possible, you can put together a plan to buy first the “right” way and avoid unnecessary stress and costs. 

Time to Make a Plan

Once you have your financing in place and you know where your down payment money is coming from, you can start to look at homes in your price range and in your preferred neighborhoods.

Remember, your price range should have been provided by your lender after you told them what you are comfortable paying per month on your new home as well as what you have for a down payment. Monthly price is key here. Throwing out a statement like “I think we’d be good with a house that’s like… I don’t know, $600k?” is risky. What will your quality of life be if you were to look at things monthly. If you make $5000 a month and half of that goes to your mortgage, can you survive and live the life you want with what you have left?

1.)  Finding your new home first

IMPORTANT: Do not go looking for a new home until you have had a very long conversation with your agent and lender about how you will finance this next home. This is worth repeating to you again and again!

One of the benefits of buying your new home first is that there’s no pressure to rush to find a home. You can take your time and find your forever home or your move-up dream home.

In the scenario where you purchase a home first before selling, the clock really doesn’t start ticking until you actually buy (or put an offer) on that new home.  Some people can be more chill than others on when they put the original home on the market, but most generally want to offload that other home sooner than later. Two mortgages is no joke.

I have had some clients that are able to buy the new home, move in and then circle back to the previous home; getting it good and ready for the big sendoff to the market. Another advantage to this method is knowing that NOTHING is harder on your walls than moving furniture. It’s often a great plan to wait until the big items have been removed before you slap paint on the walls but to each their own.

Other clients (most I might add) try to get some things ironed out while they are still living in it. They will paint, refresh the landscape, lighting etc. in those last months while they are still hunting.

2.) How to time everything to make sure you don’t own two homes for too long.

I’ve already mentioned double mortgages, which likely you don’t want, so it’s preferable to have a firm plan in place so that you don’t waste any time between homes and can close on both of them within a short time as possible.

Understanding the flow of the market, is important here. If you have the luxury of choosing when to sell your home, I like to pitch mid-April. Statistically it is the best time of year to maximize how much you make. There are seasons where homes sell better than others, that’s just the truth of it. Winters in Utah are slower because getting out either during the busy holiday seasons or trudging through the snow isn’t usually as enjoyable. People tend to nest and that’s something we can plan for. Another slow season is when school is starting again. You don’t want your current home on the market at a time when you can’t get the most for it!

To avoid having two mortgages longer than you want, PLAN AHEAD. Can’t stress this enough.

3.) Focus on selling your current home at the same time (just don’t put it on the market yet).

Now that you’ve got your plan and timing figured out, you should start preparing your current home for sale so when you do find that next home, you can quickly put your current home on the market.  You don’t want to waste time preparing your home at that point; it should already be done and ready to list.

*Keep in mind that in the event that you need to sell your home to fund this one, often it looks like putting what we call a “contingent offer” on the home. This means that the home that you’re purchasing can’t be closed upon UNTIL your current home is sold to someone else. This happens semi-regularly but for obvious reasons can be harder to pull off. If this is the case, the sellers of the home you are purchasing will expect your current home to be ready for market immediately. So again… PLAN PLAN PLAN. For your own sanity and wellbeing.

Be willing to do what it takes to sell your current home in a timely manner.  That means to price it well and fairly. It’s not time to think too high and then get zero offers, causing your home to sit on the market longer than you would like.

You goal is to start living in your new home (unless you’re thinking rental property with your old home). Every month is another mortgage payment on your former home as long as you own it.  Factor that into your budgeting and sales price.

Of course, price your home in a range that you won’t feel like you’re being shortchanged, but usually in this scenario, you can’t ask for the sun, the moon AND all the stars.

That’s why the marketing and timing of your sale will play a big part in how you price it.

This concludes our five-part series, How to Move Up to Your Next Home with Ease  —  a how-to guide on buying and selling at the same time.  We hope you’ve learned that you need to:

—Plan well in advance before you need to move.

—Rely on your experts—both your agent and your lender need to be involved from the very beginning so you know what you can do and what is best for the market at that time.

—Don’t start looking for a home first.  There are two HUGE steps that need to happen first.

—This all can be easier than you think if you plan well in advance and work with your lender and agent to guide you.

Remember, every move-up buyer is different and the plan and what’s possible depends on your financial situation and your goals. 

Contact me to schedule a conversation so we can determine what’s possible for you so you can get from where you are to where you want to be. I can’t wait to hear from you and help make your experience of buying and selling at the same time as easy and as profitable for you as possible!