Selling a home in a seller’s market can be very exciting, especially if you have built up significant equity in your home. You’ll likely receive multiple offers, enter a bidding war, and cash out of the equity that you’ve been building up. But if you’re selling your home, you’re most likely also planning to buy one. This balancing act can throw home owners for a spin, so if you’re thinking about going down this route, read our tips on how to execute a sale of your home and purchase of another.
First, you’ll want to create the worst-case-scenario plans. Of course we all aim to create the perfect situation, but in real estate ‘perfect’ often doesn’t happen; you must be flexible. Your goal may be to sell your house for the maximum price, buy another one at the same time, and have them close on the same day so you can make a smooth move from one to the other– but it most likely won’t end up working out that way. Usually one of two things happen:
1. Your house sells before you find another one– ask yourself the following:
- ‘Am I willing to stay (and pay) for temporary housing while I look for a new one or should I search for a rental and sign a 12 month lease? If I sign a longer term lease and I need to break it, am I okay with paying the penalty fees?’
- ‘What will I do with everything I own? Do I need to find a storage unit or should I sell my extra furniture?’
- ‘Am I comfortable with bearing the cost of moving twice?’
- ‘Am I comfortable with downsizing if I’m not able to find the right house in my price range after X months?’
2. You find a house before your current home sells– ask yourself the following:
- ‘Can I support two mortgages for a short time if necessary?’
- ‘Would I be willing to rent the home and keep it long term if it doesn’t sell for a high enough price? If so, will the rent be enough to cover the mortgage and upkeep costs?’
If you aren’t able to sell your house in the worst case scenario and decide to rent it, you must speak with your lender about how that impacts your ability to qualify for a mortgage. There are two factors to consider. First, the home you are renting out will now be considered an investment property and lenders generally use 75% of the rental income from the property as income. This means that if you have a $1,000 mortgage payment and you’re able to rent your home for $1,200 after you move, most lenders will only count $900 of the rent towards your income. This means that your purchasing power for your next home will go down $100/mo. Second, your insurance costs will be higher after you rent the property. An insurance policy for a rental property is generally more expensive than a homeowner’s policy and many tenants do not care for properties as well as owners do. Be sure to properly budget for repairs over the long term and speak with an insurance agent early in the process.
Making sure you’re in the right scenario if your home sells is only part of the plan; you also need to find a house, and fast. In this market, homes are selling at accelerated rates with no end in sight until (maybe) 2023. As a buyer who is also a seller, it is crucial to have realistic buying criteria when you’re making offers in a seller’s market. Many homes will sell above the asking price and that needs to be factored into your decision making. Decide what you’re willing and not willing to do before you start searching. You can start with the following questions:
- Are you willing to do repairs if you can’t find the right fit? Would you consider getting a 203k loan to finance the repairs?
- How much space do you really need? Can you buy a smaller property and plan to build an addition later?
- Are you willing to consider other areas or have a longer commute than you originally intended?
You can also check out our ‘How can I make the home buying process (mostly) stressf-free?’ article we published to give you an in depth look on how to operate as a buyer in the real estate world with the least amount of headache.
It’s most important that you have the right team in your corner at the start and throughout this process, and it can all begin with the right real estate agent. Below is a list of the people you’ll need to speak with to properly plan your move (and in this order):
- Realtor – your realtor will be the quarterback for the entire process and guide you through the steps to make sure everything goes smoothly. First step will be to review the selling price for your home, your buying criteria, and the market for where you live and where you’re looking to buy.
- Mortgage lender – get an accurate idea of your loan terms (down payment amount, interest rate, etc), submit tax returns and income docs, get pre-approval or pre-qualification (check out our article defining the difference between the two)
- Insurance agent – review your current insurance policies, work out the costs for your new purchase (and check costs for a rental policy if you need to rent your current home)
- Moving company – get an idea for moving costs, deposit amount and required notice
- Home stager (if necessary) – schedule a home staging consultation
- Contractor (if necessary) – discuss costs if your new home will need work
Buying or selling a home is a juggling act in itself, and doing them both at the same time can seem like you’re performing in a one-person circus, however you’re never doing this alone. With the right team on your side, it can be a whole lot simpler.
Lia Martin and Rodney Ross
March 16, 2022