Buying a House If You Still Have One to Sell

If you own a home and are looking to upsize, downsize or purchase a home in another area, you may or may not need to sell your current house before hand to do so. Here are a couple of the most common options for doing so:

Pay Cash

If you have enough money in savings or investments to purchase the second house without selling your current house first, this might be the way to go. Houses have been selling quickly, so if you find the right house and you are able, go for it. Chances are that you will be able to sell your current home quickly and replace some of the savings and investment monies you used, in no time.

Get Approved to Buy Without Selling

A similar concept is to get approved for a mortgage on the second house without having to sell and close on your current house first. Talk to your mortgage lender if you think this might be an option for you. You will need good credit and your debt-to-income ratio will have to be enough to afford both homes. There is risk involved in owning two homes and being responsible for both mortgage payments. The real estate market is still strong in many areas, so you still may be able to sell your current home without paying two mortgage payments for very long. Keep in mind that you will also be responsible for the utility bills and upkeep for both houses while you own them.

Sell, Rent and Then Buy

Since the market is still more on the seller's side, you might want to sell your home first and get your money in the bank. If you are open to renting short-term before you find your new home, this is a desirable position to be in. The downside is that you will have to move twice. You might have to pay for storage if there isn't enough room in your rental for all your belongings. The positives are that you will have time and more choices on your side. If you are moving to a new area, this will give you time to look around and decide which neighborhood or subdivision you want to live in.

"House to Sell" Contingency

An option which hasn't been used too much in the past couple years is to write an offer with a "house to sell" contingency. This means that you ask the seller to give you time to sell and close on your current house before you close on the new house. During the sizzling seller's market in the past couple years, sellers were not fans of this type of contingency. It is more of a risk to sellers to wait for you to sell your house. Even though most houses were selling quickly, and home values were rising, many sellers wanted to sell their homes to buyers with few or no contingencies.

"House to Close" Contingency

A "house to close" contingency is different and less risky than a "house to sell" contingency. In this case, you would already have a contract on your current home, and you would only ask the seller to wait to close until your house closes first. The further along in the transaction you are, the less risky it is for the seller of the house you are trying to buy. For example, if you are through the inspection period, the appraisal and your buyer has obtained a "clear to close," you are very close to closing and the seller of the house you are trying to buy will not have to wait long.

The real estate market is starting to balance out more in many areas of the country. Homes may not sell as quickly, and home values may not rise at the double-digit percentage rates they have been over the past couple years. As always, talk to your financial advisor, mortgage lender and real estate agent for advice on what is best for you.