Leaving Your Starter Home? Tips to Buy and Sell Simultaneously

Do you want to upgrade your current home and replace it with a new one? While many people focus on the challenges in buying your first house, buying your second home could be even more complicated. Why?

When you buy a new home while already owning another one, many things can go against your plan. You may not be able to sell the home as fast as you want. You may not find a new home within your time frame. A buyer — on either end — may fall through at the last moment. Paperwork may take longer than expected.

So, if the process is this difficult, how can you help ensure a smooth transition from your starter home to your new home? Here are five steps to take.

1. Build a Financial Buffer

Because you may have two mortgages for a period of time — however short — you aren't as attractive a buyer to mortgage lenders and home sellers. To combat this, build up a financial buffer to cover a variety of potential expenses.

You will likely need to cover the down payment, for instance. If your debt-to-income ratio (what you owe vs. what you earn) is too high, you may need to get a smaller new mortgage or pay off some other items. You might have other, routine move-in costs as well — things like remodeling or the actual move expense. Keep in mind that you will need to cover some of these before you close on the old house.

2. Reduce Debt and Expenses

The easiest way to have a steady plan when selling and buying simultaneously is to be able to absorb both mortgages for a limited time. Can your finances handle this? If not, use this time to get expenses and debts down to a level where you could pay a second mortgage payment until you do sell the first home. Many people have a hard time downsizing, but remember this is only for a little while.

Your ability to qualify for a new mortgage — no matter what — also increases as you reduce other debt obligations. Lenders generally prefer to lend to persons who carry less than about 36% debt for their income. If you eliminate other debt and only have a mortgage remaining, you may qualify for a second mortgage and not have to stress about selling your old home immediately.

3. Work With a Mortgage Broker

A good lender is key to making a success of a simultaneous buy/sell arrangement work. Discuss your plans as well as current financial situation with an experienced broker, and ask for recommendations to make it as smooth as possible.

Your broker knows how to work with someone in your circumstance. They may suggest a short-term (often called a bridge) loan that would help you cover the cost of the new property in the event that your home sale is delayed. Or, you may qualify for a different product, such as hard money lending, that has different lending standards.

4. Have a Backup Plan

As mentioned, many things can derail a complex sale purchase timeline. So, do yourself a favor and prepare a contingency plan or two. Some people who can't sell their old home right away may choose to rent it out and use the income to pay the mortgage. If you can't locate or close on a good replacement house, you may opt to rent for a few months or a year so you have time to find a good match.

If you're not sure how to get started navigating the challenges of buying and selling simultaneously, Cornerstone Residential Mortgage can help. Our mortgage professionals can assist you with preparation for the sale and understanding all the best options. Call today to learn more.