Stuck Between Homes? Here's How to Sell One, Buy the Other
NEW YORK (TheStreet) -- The nightmare scenario: You find your next dream house and know that in today's improving market other bidders are sure to come along soon -- but you've yet to find a buyer for your current home. Often that makes it impossible to qualify for a mortgage on the new property, but owning two at once is out. And the seller may balk at a sales contract contingent on you selling your old place.
Nearly every homeowner faces this issue, especially if the move is driven by something such as a new job that just can't wait. The mirror-image problem -- selling the current home before closing on the new one -- can be easier to handle. You might find a short-term rental, take a nice vacation until you can move in or double up with friends or relatives.
So what are your options when your purchase or sale don't dovetail?
First, try to avoid the issue by making your current home as appealing as possible to buyers, to sell quickly. Get it on the market as soon as you decide to move. Don't hold out for a stratospheric price. Spruce the place up. Be willing to include things such as appliances, window treatments and even the lawnmower and snow blower. Think about offering a home warranty.Also think hard about whether the new home really is important enough for all this hassle. Is it unique, or are there many others that would do just as well -- other condos in the building, for instance? Mortgage rates are not likely to rise much, if at all, in the next few months. Prices are drifting up, but in most regions not too fast. It might not cost anything to postpone the purchase until you have a buyer. For the owner who must buy before selling, a bridge loan might help. These typically last for six or eight months, according to HSH Associates, the mortgage-data firm. They're not all that easy to come by, and interest rates may exceed 6.5%, double what you'd pay on a conventional mortgage. You may also face an additional payment premium in addition to closing costs. But you won't be paying that high rate for very long if things go according to plan. Because you may not qualify for a mortgage on the new home if you're still paying one on the old one, you could consider taking out a home equity loan or line of credit on the old property to buy the new one. For this to work, you'd have to have plenty of equity on the old home, which is why this approach may be best for seniors who have paid their mortgages way down. In essence, you'd take money out of the old home before selling it, use the cash to buy the new one, then pay off the loan when the old home does sell.
A cash-out refinancing on the old home would accomplish the same thing, but HSH cautions that the fees would likely be much higher than with a home equity loan. Another option, if you're very lucky, is to borrow from your rich uncle. You could get a temporary loan to buy the new place and pay it off later with the proceeds from selling the old home, or by mortgaging the new one after the old home sells. Finally, you could tap other savings -- your investments, 401(k) or even the kids' college savings, assuming they're not in a tax-favored account such as a 529 plan. If it's a temporary loan until the old home sells, you could get lucky and not miss out on major gains the funds could have realized in the investment account. Keep in mind, though, that selling a profitable investment could trigger capital gains tax. It would be a shame to pay a whopping tax for money you needed only for a month or two. Sometimes, waiting on the new-home purchase is the best option.
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