00:34 Do you buy first, or Sell first?
01:10 Buy first, If you have Savings
02:26 Buy first, Rent the existing home
03:10 Buy first, Get a Loan for the Down Payment
04:11 Sell first, Negotiate time for your search with a Leaseback
06:03 Sell first, Finding Interim Housing
07:29 New Construction Benefits
Welcome to 2023. Today I want to cover something I do get asked all the time about, but especially now. People want to upgrade, buy a new house and sell their existing home, and whether you have done this before, many times before or never, the uncertainty of 2023 has us all wondering how this might pan out. I get it, let’s rap about it – and hang tight… I’ve seen other videos about this around but no one is really answering the questions that I get asked, so I want to get honest, you know, dig deep. Let’s get going.
The big question is, do I buy first or sell first? The answer is as unique as each of my clients, so I’m going to break the some options down, but also talk a little about what I’m already seeing this year and hopefully by digging in a little deeper, shine a light on what might work best for you. But before we proceed, right now, anyone selling a home really needs to understand the current market and have a plan together. I touched on this in my last video so I’m not going to rehash that right now, but this is of paramount importance, so please watch that video.
Let’s start by going over some options to buy first.
Option 1 only really works if you already have money saved up. You can just use the money you have in savings to go out and purchase the new home with a downpayment. But hold on, how much of that money should we be putting at risk? Will we sell our house for the value we think we can, and what happens if we don’t? My suggestion right now, and this is something I worked on with buyers in 2022 as well, put a little less down to keep money in the bank. 10% down instead of 20%. You can get a conventional note for as little at 3 to 5% down with some lenders. Then, when we do sell the house and you have the proceeds, put the additional money down. Once you do that you can go to your lender and recast the note, bringing your monthly payment down to a more comfortable place, and best case scenario with those proceeds you can also refill the coffers. Win, win. You probably will have to qualify for a second mortgage, and they’ll want to see money saved up for up to 6 months of bills…
So let’s also riddle this for those that have investor aspirations – a second option, and this could also serve as a general back up plan potentially if you do qualify for a second mortgage, is to lease your existing home when you purchase the new one, to a tenant. Might not work for everyone, but it’s how many folks actually get into their first rental property, and if you have any aspirations to being a landlord or real estate investor, this might be your moment, Mustafa. You could, possibly, do this without being able to qualify for that second mortgage, if you get a lease signed before you close on the new home, for someone to move in before that first payment for the second mortgage comes due. Meaning you will have to market the house while you live there – so, there’s that.
But, another option to buy first would be leveraging a bridge product. Commonly known a “Bridge Loan”, this basically is a temporary loan that should get you enough for a downpayment leveraging your existing assets. The good thing about this method is that it’s no money out of pocket, but it does come with that same risk of not knowing how much you will sell your existing home for. The benefit we have here is that the underwriter will not approve the note if they don’t think we can do it. That fear aside, you also will typically pay a premium for this type if loan. They’re short term, and those come at a higher rate. Another, possibly better option, though it can take a little longer sometimes, might be to just get a home equity loan or line of credit. Right now, I think it’s worth exploring all the options a lender may offer, most will have something to suggest that might work for you. This would also play into the idea of renting that existing home. I’m just sayin’, it’s an option.
Now, what happens if you need to sell first? How do you do that?
One option, and I know this makes people nervous, but hang tight – we can negotiate a longer escrow period if needed, and do a leaseback if it becomes necessary. This is the kind of thing we would inch our way into as needed, but you’ll want to negotiate many of the terms and disclose this up front. That way there are no surprises in the end if the buyer you are working with doesn’t get blindsided if you need to stay in the house after the sale.
That said, maybe I should explain what this is… The escrow period is the time it takes for buyer diligence to take place, and the loan to be approved, typically this can happen in 20 or 30, sometimes 45 days. In Tennessee the loan disclosure docs have to go out 3 days before the closing date, so if you ask for a longer escrow period, say 60 days, you want to do that before you get under if you can, so everyone plans accordingly. A temporary leaseback, if it’s needed, gets drafted through an amendment for the contract and typically outlines how long the seller intends to occupy the property after the sale. Again, if you anticipate the need for it, negotiate this up front, at least get the terms outlined so that you can set expectations and potentially get a much better deal for the leaseback terms, pricing, etc. as opposed to asking for it at any point after you’re already under contract. It just puts you in a better position for the ask. But if this is needed, it may be because of a slow market, it’s 2023 and we’re starting off a little slower than the last two years, so let’s offer an alternative…
How about if you just get yourself interim housing from the start? Like, if you found somewhere to stay before you list the house, before you even start looking for a new one? This could take all the complications out of any temporary leaseback issues, but it has its pros and cons, and it depends on what options you may have for interim solutions. The main considerations here are cost and storage. Could you live with family through the process to potentially save some money? Or, would you need to find a month to month rental solution? And what do you do with all your stuff? I’ve seen people move in with parents, or with kids or other family. Whether they do this or find a rental, it gives you an opportunity to pack up the essentials and bring them somewhere. Keep what you need, put some in storage. Some people leave the house staged with the big furniture until closing. Mobile storage solutions are popular because the pod can often live at the house until you close, and if you do leave big stuff in the house until then, it can make the final move out a little easier.
All of this said, I’ve had some clients look at new construction as an alternative solution to many of the issues that present while trying to sell a house and buy a new one. Typically with new construction, you’re looking at a set time frame for completion, which at least gives you an idea how long you’ll need to find the interim housing for. If there’s a long enough period of build time on your new home, while you’re under contract to buy, you can prepare and get the house ready to sell, and wait to list it until you’re within a couple months of that completion. If you’re uncertain of how long it’ll take to sell, you can typically list the house after you’re under contract to buy and utilize as much of that time as you need. Now, with new construction, I do typically see a need for interim housing – whether it’s weeks or months – often due to builder delays. But every situation is different.
And that’s where I’ll sign off for today. Because honestly, whatever you decide to do will be totally unique to your situation. I hope you can see that there’s a possibility to mix and match here, that there’s no one-size-fits-all. And I hope this helps you, thanks for watching!