If you are looking to sell your current home while you are buying or building your Florida dream home, it can be a tricky transition if you’re not careful from the very beginning. In a perfect world, you could focus on buying or building a new home, and when all of the loose ends are tied up, only then would you have to deal with the aggravation of selling your current home. For most of us, of course, that’s impossible. Very few of us are able to pay more than one mortgage at a time.
Of course, first-time builders and homebuyers do not have to face these kinds of considerations – they may have a lease to deal with, but a second- or third-time builder or buyer already has an existing home to sell, ongoing mortgage payments to make, and a number of other considerations. Of course, you have real equity in your current home, but until you can actually sell the home, that cash will be unavailable to you.
WHAT DOES BUYING AND SELLING SIMULTANEOUSLY ENTAIL?
If you’re like most of us, you will have to sell your current home before you can purchase a second home or build something new. Thoughtfully planning for how you will handle the risks and obstacles that you’ll encounter can help to ease the inevitable anxiety. Here are some ways to make selling your current home go as smoothly as possible while you are simultaneously building a new home or buying a second home:
• Have the basics covered: Have your current home listed, get pre-approved for a mortgage, and start talking to builders and real estate agents.
• Paint, clean, and repair where needed: Get your home ready for buyers. Speak with an experienced real estate agent and find out how long a sale might actually take at each of several different price levels. Hire an appraiser, and then set a realistic and reasonable sale price.
• Put your finances in order: If you opt for briefly owning two homes, apply for a home equity loan, or find out if you can qualify for a bridge loan (to provide for the new down payment and to subsidize, briefly, the second mortgage).
• Look ahead: If you must sell first, you may need to find a house or apartment for a short-term rental. You may need a rental storage facility for some of your possessions. Call moving companies and ask about rates. Don’t forget your pets; many rentals will not allow them, so you may need to board them or find a friend who can care for them.
• Know the current real estate market: Before you sell a home, purchase a new home, or sign a contract with a Florida homebuilder, have a solid understanding of the current real estate market in your own area, and if you’re moving away, learn about the market in the area where you’re moving. With that knowledge, you can make confident decisions.
CAN YOU DEAL WITH TWO MORTGAGES?
Should a homeowner build or buy first, and then sell the current home, or vice-versa? Both choices have some risks and some advantages. Selling your current home first makes it easier to obtain a mortgage, but you will need to find a temporary residence. Buying first eliminates that aggravation and makes moving considerably easier, but it also temporarily distorts your debt-to-income ratio, making a new mortgage difficult to obtain. And if you do not sell quickly, you’ll be juggling two monthly house payments.
Those who sell their current home first may want to consider the option of a “rent-back agreement” where a seller negotiates with buyers and lenders to remain on the property for up to sixty or ninety days in return for a lower sale price or for paying rent directly to the buyer. A rent-back agreement can ease a lot of the pressure by giving you additional time to find a home or build a home.
Can you deal with two mortgages? If so, for how long? What if your home doesn’t sell quickly, or if you end up having to sell your home for less? You will need to consider and prepare for all of the possibilities. Understand that for most homeowners who are selling at the same time they are building or buying, it is not going to go smoothly and quickly. Closings are routinely postponed for all kinds of reasons. Buyers may have difficulty securing their mortgage. The home inspector may bring you bad news about needed repairs. The party you sell to is simply not going to move in perfect coordination with the party you buy from.
In general, the best advice is simply “be prepared.” Regarding your particular circumstances, seek advice from a real estate agent you trust, or consider retaining a real estate attorney to “watch your back” and keep everything compliant. If you intend to build, work from the very beginning with an experienced Florida homebuilder who can provide practical help and insights along the way.
WHY SHOULD YOU CONSIDER BUILDING?
Finally, never let fear push you into making a bad decision. If you are not building, and you sell your home but you can’t yet find the right home to buy, do not let anxiety be your guide. It is probably best just to plan on a short-term rental that can be renewed so that you don’t feel pressured by time constraints. However, if you haven’t considered building, look into it even before you start viewing homes. It probably costs less than you think, and an experienced homebuilder has insights and advice that you can’t find anywhere else.
Try not to put yourself in a position where you feel like you have to compromise on the things that are important to you just because you need to find a home. You will pay too much, and you’ll be unhappy in the long run. Along the same line, do not accept a low bid on your current home just because two mortgages are putting pressure on you. Obtaining a renewable, short-term rental that you can fall back on is almost always the smartest thing to do when you are building or buying a home and selling at the same time.