Steps in Selling the Old Home and Buying Another

© Denis P - Flikr

The real estate market has changed dramatically in many parts of the country from a couple of years ago. There are now fewer homes for sale than they used to be and many people might find themselves in an interesting in-between stage: finding a home to buy before they sell the one they live in. Ideally, you would switch from one mortgage to another the same day, buying the new home at the same time you sell the old one.

We don't live in a perfect world so most people need to secure financing for the new home before they are able to sell. Nobody likes to be homeless, even for a short period of time. If you sell your home first, before you bought the new one, that's exactly what you are. Now of course, the meaning of the word is not precisely the same as for the people hit by poverty and misfortune. Yet, besides the advantage of getting the cash you need to buy the new home, you need to find a way to cope with the squeeze time, from the moment you leave the old home to the one you buy and move in the new one.

Switching from one home to another is by no means a trivial step so you have to carefully consider many important aspects and ask yourself a series of important questions:

• How long it will take to sell?
• Is it possible to sell and buy at the same time?
• Can you make a sale-lease back arrangement?
• Can you afford to buy before you sell?

You can find good answers to all the questions in this recent article.

Don't panic if you were able to find the perfect next home while your old house is still on the market. Here are a few options for the squeeze time if you first sell the old house:

• Rent back the house from the buyers, provided that you cover their costs for the time you rent back: the new mortgage, property taxes, utilities and homeowners insurance. The best way to secure this option is to include a provision in the sales contract allowing you to rent back for a certain amount of time;
• Move in with parents, a sibling or a friend. You may need this option if it takes more than a month to find the new home. While this option buys you time, you need to consider the costs of moving your stuff twice;

Depending on the conditions of your local market, you may find the new home to buy before you sell the old one. Even though lenders have a standard 40% ratio between income and mortgage, they might loosen up a little and allow a 50% to 55% debt-to-income ratio for someone temporarily straddling two mortgages. Here are some options in this case, presented in more details in an article published on MSN Real Estate:

• Tap your home equity;
• Consider a bridge loan or wrap financing;
• Borrow from relatives or from your 401(k).

We do not advice tapping into your 401(k) but use a contingent contract for selling buyer's home, meaning the buyer's home must sell before the buyer is obligated to complete the purchase transaction. But remember: your ability to bargain on a new home is greatly diminished by the conditions that you build into the offer. Many people do not entertain offers with strings attached and if you are putting a bid on a foreclosure, it won't be considered if you have a contingency on selling your home. Considering today's market, many real estate agents believe that the sale of the present house trumps the purchase of the new one in order of importance.