Living in your current home and wondering if you should buy before you sell? This article has you covered and answers all your questions—should you have any!
Assess Your Situation
First and foremost, determine if you need to sell your current home before buying a new one. For many, selling first provides the funds for a down payment, aligns with the home-buying steps, and helps avoid the uncertainty of the market. However, buying before selling offers flexibility to explore the market freely and avoid temporary stays, rent-back agreements, or sale contingencies.
Why Buy Before Selling?
When you buy first, you can focus on finding your dream home rather than rushing due to necessity. Additionally, you avoid complex contingencies and the hassle of moving twice. Here are your options if you choose this approach:
1. Cash-Out Refinance
A cash-out refinance allows you to tap into the equity in your current home by refinancing for a higher value and taking the difference as cash. This option works best if:
- You own at least 20% equity in your home.
- You have a good credit score.
- Your debt-to-income ratio is 43% or less.
While it provides liquidity, it’s essential to assess whether this option aligns with your financial goals.
2. Sale Contingencies
A sale contingency ties your offer on a new home to the successful sale of your current property within a specific timeframe (typically 30-60 days). If your home sells, both transactions proceed. If it doesn’t, your offer becomes void.
Considerations:
- Sale contingencies may be less appealing to sellers in competitive markets.
- It’s a safer option financially but may reduce the competitiveness of your offer.
3. Rent-Back Agreements
If you need extra time after selling your current home, a rent-back agreement lets you stay temporarily while renting the home from the new owners. This option provides breathing room but may require lowering your sale price or paying rent.
Key Details:
- Rent terms and deposits are similar to standard rental agreements.
- It’s a short-term solution and requires renter’s insurance for added security.
4. Home Equity Line of Credit (HELOC)
A HELOC allows you to borrow against your home’s equity, functioning like a credit card. You only pay interest on the amount you borrow. This option is ideal for short-term needs, such as a down payment on a new home.
Points to Consider:
- Interest rates can fluctuate with the market.
- Defaulting on a HELOC could result in losing your home.
5. Bridge Loan
A bridge loan helps cover the gap between buying and selling homes. It allows you to use your current home’s equity for a down payment on your new home and pay it off when your old home sells.
Quick Facts:
- Typically, bridge loans last 6-12 months.
- High-interest rates make them a short-term solution only.
How Linkhome Can Help
With Linkhome Buy Before You Sell, we simplify the process:
- Pre-underwriting: Your mortgage is pre-approved, making your offer more competitive.
- Short-term financing: We provide financing to help you make a cash offer.
- Streamlined process: Move into your new home quickly and refinance into a long-term mortgage within weeks.
Most importantly, you don’t have to move twice!