Hello readers! I apologize that it’s been forever since I posted, but I have been extremely busy selling houses, and it’s been tough to fit in writing and posting. But I do enjoy writing these posts and the clients I get to meet as a result of them, so I will try to post more frequently.
One of the questions I get asked most frequently is, if I already own a home, how do I buy a new home? I am happy to tell you some common ways to do this, but I urge you to talk to a loan officer or an accountant if you have detailed questions about the loan side of things. This list is not all-inclusive. It just contains some of the most common ways of making it work.
1) Put your current house on the market, with the understanding that your realtor (could be me if you live in MD, DC or VA) will tell whomever wants to write an offer on it that you need a 60-day rentback. Then, you settle (meaning you officially sell your home and collect your proceeds from the sale) in, say, 30 days, and then you have the next 60 days, while living in your current home, to find a new home, settle on that home, and move.
Advantage: This is the simplest way to make a move, in my experience. You have the money from the sale of your house, but you don’t have to move twice.
Downside: You have to be reasonably confident that you will find somewhere you want to move in that 60 days.
2) Take out a home equity loan on your current home to have a down payment for your new home. Then, take out a conventional loan to pay for your new home. Once you sell your old home, you pay off the loan (or pay off a lot of it, anyway).
Advantage: You can buy a home whenever you find one you love, and then sell your old home. You can even move into the new home first so you don’t have to worry about de-cluttering your old place, or leaving it all the time for showings. As I said above, you can get a conventional loan when you do this (rather than a bridge loan, which tends to have a higher interest rate and more fees), but you need to wait six months in most cases before you’re allowed to pay off the conventional loan.
Downside: You have to be able to qualify for another loan while you might still be paying off the mortgage on your original home. You might have two mortgages for a period of time, and you’ll have to be able to handle that.
3) Borrow or withdraw from your 401K or other retirement plan to buy your new home. When you sell your old home, pay back the money into your retirement plan. This is the option I know the least about, in terms of tax implications, interest, etc. If you are considering this option, I strongly recommend that you speak to an accountant so you fully understand how this works.
Advantage: You don’t have to sell your current home first. You can find a home you really want before selling.
Downside: There could be tax implications, and well as having to pay interest on the loan.
4) Sell your current home, collect the proceeds, and then rent a home until you find something you’d like to buy.
Advantage: You can take your time to find a home that you really love, and you have the money ready as soon as you find something.
Downside: You have to move twice. Enough said.
5) You put a contract on a home, contingent on your selling your current home.
Advantage: You can take your time to find the home you want, and you’re protected from being locked into the deal until you know that your home will sell and you’ll have the money to buy the new home.
Downside: At least in the DC metro area, it is very hard to find a home seller who will agree to this contingency. Desirable homes go under contract very quickly here, and most sellers don’t want to take on the risk of waiting for your other home to sell. Also, even if they agree to it, the contract will still have something called a “kick-out.” That means if any other buyer comes along and wants to put a contract on the home, you will have 3 days to come up with money another way, or lose the home to the new buyer. Now, most buyers don’t search for homes “under contract with a kick-out” so that gives you some measure of protection, but it’s still possible you’ll lose the home. This option does sometimes work if you find a home you want that’s been on the market awhile. But, you have to get your home on the market within 3 days of putting the new house under contract. It’s easier if your home is already on the market, or completely ready to put on the market.