For most consumers, owning two homes -- and paying two mortgages -- is a financial impossibility. That makes trying to time the sale of an existing home with the purchase of a new home all the more stressful. Your best bet in today's market is to focus on selling your existing home first.
In normal times, most homeowners wait until they've found their dream home before putting their existing home on the market. That's no longer a good idea, explains Dorcas Helfant-Browning, a Virginia-based real estate agent and past president of the National Association of Realtors. "People used to put an offer in on a new home with a first right of refusal, contingent upon their ability to sell their old home," says Helfant-Browning. "Now you're better off putting your home on the market first."
By accepting an offer on your old home before shopping around for a new one, you're more likely to qualify for a better mortgage rate. Lenders aren’t as keen to approve you for a second mortgage if there's a chance you'll be making payments on two mortgages simultaneously. And that's unfortunate given that mortgage rates are at historic lows.
Down in Virginia, for example, homeowners can apply for a 30-year fixed-rate mortgage from Capital One (Stock Quote: COF) with a rate of 5.0%, and a rate of 5.375% from both RBC Bank (Stock Quote: RY) and Provident Bank of Maryland (Stock Quote: PBKS).
Your agent can help you sort out the timing of when you actually hand over the keys to a buyer.
"In accepting an offer, you can make possession of the home contingent upon your finding a new home," says Helfant-Browning. "You can also try to take early occupancy of the new home or rent your old home from the new owners." All of these options are a way to get around the fact that there is at least a 24-hour delay between when you close the sale of your home and when the proceeds are available for use as a down payment. Consider having a contingency plan, such as a monthly rental in case there are a few weeks between closings.
If you don't want to sell your old home first and risk the 24-hour gap, you can always try to raise enough cash for the down payment by applying for a home equity loan or line of credit. Just make sure you apply for the loan before you list your home -- most lenders won't approve your application once it's listed.
Whatever you choose, it's important to stay flexible. "In most cases you're moving to a bigger and better home, so stay optimistic," says Helfant-Browning. "It pays to be a little flexible if it lets you find your dream home."
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