When you graduate from the first-time buyer to second, the process becomes infinitely more complex. “How are we going to do this?” is a common question from homeowners in the market for a new home.
There are several ways to approach buying a home when you currently own one:
- Put the home on the market and plan on moving into a rental after it sells and before you purchase the new home. This is probably the least stressful option, especially if you can locate a rental that doesn’t require a lengthy lease. The biggest drawback is having to move twice within a relatively short period of time.
- Keep the current home while you purchase the new one. In this scenario, you’ll carry two mortgages until you can sell your current home. Also, financing the new home may be a challenge because your current mortgage payment makes your debt appear higher than it will be once all is said and done.
- Try to time the purchase and sale to happen concurrently. This is known as a “simultaneous close,” and although it can be (and frequently is) done, it’s a bit of a gamble. Many things can go wrong and hold up the closing of either transaction.
- If you lack the cash for the down payment on the new home without selling your current home, a bridge loan is a good option. Bridge loans are short-term loans (typically for six months but can be extended) with a slightly higher interest rate than a mortgage loan and higher closing costs as well. This loan bridges the gap between the purchase of the new property and the time the current home sells. Some experts believe that bridge loans are risky while others think they are the ideal solution to the buy-first-or-sell-first dilemma.
Only your real estate attorney or accountant can counsel you on how to approach the situation and which option is the best for you.