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Selling your current home while buying a new one is a complex but manageable process. Success hinges on strategic timing, understanding contingency offers, and exploring flexible financing options like bridge loans. By researching your local market and preparing for potential hurdles, you can minimize stress and create a realistic transition plan. This guide outlines the key steps to coordinate selling and buying a home effectively.
In a perfect scenario, the sale of your current home closes just before you purchase the next. To approach this ideal, start by analyzing your local real estate markets—both where you are selling and buying. A critical metric to understand is Days on Market (DOM), which indicates the average time comparable properties (comps) are listed before an offer is accepted. A low DOM suggests a seller's market, where homes sell quickly, while a high DOM may indicate a buyer's market. Pricing your home competitively from the start is essential to attract buyers and align with your moving timeline. Concurrently, research your target neighborhoods so you are prepared to act once your current home is under contract. Initiating conversations with mortgage lenders early is also crucial, as your debt-to-income ratio will be calculated using both your prospective new mortgage and your existing one.
If you need the equity from your home sale to fund the new purchase, your offer on a new house will likely need a sale and settlement contingency. This clause makes your purchase offer conditional on the successful sale of your current home. While this protects you, it makes your offer less attractive to sellers, who may prefer a buyer with no chain. In competitive markets, sellers might bypass contingent offers altogether. If a seller accepts your contingent offer, they typically retain the right to consider backup offers. If a stronger, non-contingent offer arrives, you could be given a short period (often 24-48 hours) to remove your contingency and proceed unconditionally or risk losing the new home. Based on our experience assessment, the acceptability of contingent offers varies significantly by market conditions.
Once your offer is accepted, formally apply for your new mortgage. It is advisable to obtain quotes from multiple lenders to ensure competitive terms. The lender will assess your eligibility by calculating your debt-to-income ratio (DTI), a key metric that compares your total monthly debt payments to your gross monthly income. Most lenders require a DTI of no more than 43%. You will need to decide on your down payment amount, loan size, and the type of mortgage, such as a fixed-rate or adjustable-rate mortgage.
When the sale and purchase timelines don't align, several financing strategies can provide flexibility:
Another solution is a rent-back agreement. In this arrangement, the buyer of your current home agrees to lease it back to you for a period, typically 60-90 days, giving you more time to move. This may require you to offer a lower sale price or pay market-rate rent. Note that not all lenders permit rent-back clauses, so confirm its feasibility early.
To successfully manage a simultaneous sale and purchase, begin with thorough market research and secure a knowledgeable real estate agent. Understand the risks and benefits of a contingency offer based on your local market's temperature. Most importantly, explore all financing alternatives with your lender early to create a robust backup plan.
