Real estate transactions are inherently stressful. Negotiating high dollar amounts for something deeply personal dredges up all sorts of complex emotions. And then there are the logistics.
Trying to fit the pieces together can be the most complex part of moving. And things become even more complicated when you need to sell your current home while you buy your new one. The thing that makes simultaneous buying and selling so tricky is the timeline. It involves lining things up perfectly to navigate moving your things, having the money from the sale of your home to put down on your new one, and closing on your new home without ending up without a place to sleep in between.
People often try to find the best way to move through this transition. Is it better to sell your home first and then shop for a new one? Or should you tackle it all at once? There is no one-size-fits-all answer. Individual circumstances will dictate the best answer for you and your family.
The good news is that people buy and sell homes every day. And navigating the details can be handled with some expert advice and a little bit of advanced planning. You might even find creative options like quick home buyers or companies that buy homes for cash that can offer added flexibility.
Deciding the timeline of your home sale will often come down to budget. For many people, it simply isn’t feasible to close on a new home before they sell their current one. The expense of paying two mortgages is cost-prohibitive to most people, who also rely on the equity from their home for the transaction to close.
How do you decide? Here are the benefits and drawbacks of each option to consider when planning the timeline of your home transition.
Selling First
Selling your current home before you start shopping for a new one has some advantages, but it is often not an ideal choice because it means finding a temporary living situation.
Benefits
- You’ll have the cash from your sale to put down on your new home
- It reduces your debt-to-income ratio, which is helpful for the approval of your new mortgage
- You can take your time searching for the perfect new home
- It can offer increased flexibility for your purchase timeline
- You can eliminate contingencies, making your offer on your new home more appealing.
- You don’t have the risk of being stuck with two mortgages
Drawbacks
- You will need to find temporary housing in between and move your things twice
- The entire process will take longer from start to finish
Simultaneous Closing
People looking to buy and sell often aim for a simultaneous closing. This strategy is convenient for many reasons but leaves little room for errors or delays.
Benefits
- You might be able to execute the sale and the purchase on the same day
- You can move straight from one home to the other
- You can often roll the proceeds from your sale right into your new home purchase
Drawbacks
- Depending on the market, timing can be tricky. If you need an offer to fit your timeline, you may have to accept a low offer.
- A simultaneous closing leaves little room for error. If financing or contingencies from your home sale fall through, your timeline falls apart.
Tools That Can Help
There are a handful of helpful tools that can come in handy. As always, a real estate expert will be a great resource to guide you through your options and help you navigate all the possibilities.
Contingencies
It’s not uncommon to have a real estate deal built on contingencies. This means that the offer on your new home is contingent upon certain conditions. You can have contingencies regarding your financing or the sale of your current home. These contingencies offer protection and allow you time to get your transaction in order.
Back-to-Back Closing
When you can align the closing of both homes, you can execute a back-to-back closing. When this happens, the money from your home’s sale goes directly into purchasing your new house without having to wait for the funds to clear in between. This speeds things up and makes a same-day closing possible.
Rent-Back Agreements
A valuable tool for navigating the timeline of a sale is negotiating a rent-back agreement with the buyers of your home. In essence, you sell your home, and the new owners agree to rent it back to you for an agreed-upon period. The benefit is that you will navigate closing and free up the funds to close on your new home. This buys you valuable time in your closing timeline to allow all the pieces to fall into place.
Investors
An often overlooked tool is the option to work with a real estate investor. An investor operates differently than a traditional buyer. They are typically direct home buyers who do not plan to move into your home and have no emotional attachments to the transaction. Because of this, they can typically offer you more flexibility when you sell them your home. You can often pick your closing date and move-out date much easier with an investor than with a traditional buyer.
Selling your house and investing in a new home represents a big dream and a lot of hard work. No matter how you choose to navigate the transaction, new beginnings await you and your family on the other side of the real estate deal.