The Ultimate Real Estate Balancing Act

You have found your new home; here is where the rubber meets the road.  It is time to figure out how you are going to buy and sell.  There are several scenarios to consider:

• Scenario 1: Buying Before Selling –  This option gives you the most flexibility without having to move twice.  We can even structure your new loan to recast once your current home closes so you can ultimately still use the equity in your current home to purchase and lower your overall monthly payments. 
•  If you qualify to carry both homes, this is an option that would allow you to put in your offer on the new home and then list your home for sale.  You may have 2 different closing dates, or you may be able to line up the closings back to back (depending on timelines).  In this situation, you will need to be prepared to make payments on both homes for a period of time, but the idea is to line up the closings to minimize your carrying costs.  It is very important to work closely with your lender and Realtor to ensure this goes smoothly as there are financial risks if you ultimately can not buy once you go under contract on a new home. 
• Scenario 2: Buy with a Bridge Loan – Real estate values have skyrocketed over the last several years, so many homeowners have a significant amount of home equity to use towards a home purchase.  If you close on a sale/purchase back to back, your equity flows from one house to the next, but what happens when you close on your new home but haven’t closed on the one you own?  You can tap into your home equity with a bridge loan (often secured by your current home) – essentially “bridging the gap” and allowing you to use the equity in your home to close on your purchase and then pay back the loan with your existing home sale closes. These loans can be relatively expensive in terms of interest rate; however, the goal is not to carry this loan for too long.
• Scenario 3: Using a Line of Credit (HELOC) – this is essentially the same idea as a bridge loan.  Many homeowners have a line of credit secured by their current home available to pull money from to cover the time between the purchase of their new home and the sale of their existing one.  HELOC rates are variable, so in today’s market, they have been adjusting quickly, however, again, this is meant to be a short-term solution, so you are not carrying this loan indefinitely.  
• Scenario 4: Buy with a Sales Contingency – You can put in a contract to purchase a home with a stipulation that your current home must sell to be able to complete the purchase of a new home.  However, there are many downsides to this option. In North Carolina you there is no longer a true contingency where you get your money back if your home doesn’t sell, so there is a lot of risk to get your home sold in a short period of time.  Also, in the current low inventory market most sellers are unwilling to accept contingent offers as they would rather have a more secure buyer so they can also move forward with their future plans. This is a least desired option with the way our NC contract work due to the financial risk for the buyer. 

If you want to buy a new home but are worried about selling and having nowhere to go, you are not stuck!  Many options are available when you own your home that allow you to purchase a new home and be secure that you won’t be homeless.  Ultimately, it is important to talk to your Realtor and your lender before starting the process to know exactly what the process will entail and ensure that you are prepared.