When we bought our second home, we assumed the only way to buy a home was to sell the home we were living in. We noticed that a lot of sellers move into their new homes before selling their other homes and were curious about how people financially did it. This past year, we bought our third home before selling our previous home.
We loved our previous home, the property lot and our neighbors, therefore it would take the right house to get us to move. We did not want to move and be limited to what was on the market. Buying a home before selling helped us secure the home we wanted.
What does it take to buy a home before selling and what are the benefits? Here is how we approached it.
Cash
You must have some cash that is not tied up in your home equity. We recently bought a home before selling. Our loan officer helped us navigate how to buy a home before selling the home we were living in. He introduced us to the process of putting 5% down on the new home to complete a recast of our loan once we sold our other home.
To do this, we had to have the cash to make a 5% down payment. We locked in an interest rate, our loan was approved and we closed on the home. In addition to needing cash to finance the down payment, cash is needed to finance the maintenance of two homes, utilities and mortgage payments. The decision was not made lightly or without several discussions of budgets and potential financial losses if our hose sale did not go as planned.
We recently sold our other home, and our mortgage company allowed us to recast our loan. What is recast? We were able to keep all the same terms of our loan without spending thousands in refinancing closing costs. There were some minor administration fees, including a broker fee for an updated appraisal to make sure the home had not dropped in value. For us, recasting meant lower mortgage payments and elimination of property mortgage insurance.
Avoid Showings
Buying before selling may allow sellers to move prior to showings of the home. Showings can be a massive headache. In addition, it can be unnerving to know strangers have been through your home. During our home sale, we had almost 30 showings in the first two weeks. With three kids and a dog, it was difficult.
In our case, our new home was less than half a mile away. Although we did not move until we sold our home, we had our new home to retreat to during showings. Why did we not move to avoid showings? We wanted our home on the market as quickly as possible to avoid owning two homes for a long period of time. We were not ready to move and our new home needed some repairs prior to moving in.
The Negatives
Having two homes, even for a small amount of time, can be stressful. Both homes have to be maintained, managed and financed. Before deciding to carry two homes, make sure you can carry both homes for a period of time.
We found our loan officer, our realtor and financial advisor to be helpful. Realtors can complete a market analysis of your area that gives a best guess of how long it might take to sell your home based on other comparable homes. Understanding how long you might need to finance two homes will be helpful. Thankfully for us, we were under contract in less than two weeks and carried both homes for only two months. It was more stressful than we realized, but we are thankful for the quick and smooth home sale we experienced.
Check out why we decided to move into another old, ugly and outdated home.
