Author Topic: Best approach to selling home and buying new one (timing, funding, etc)  (Read 1652 times)

jhrobbin

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What's the best approach for selling an existing home and buying a new one?  What have you done in this or similar situation?
  • Bridge loan then pay off new home with proceeds from sale of current home
  • HELOC for downpayment on new mortgage then pay off the new mortgage and HELOC with proceeds of sale of current home
  • Sell non-retirement investments to fund downpayment on new mortgage, then pay new mortgage off with proceeds, and reinvest the initial investment I sold
  • Sell current home first and only then buy another home
  • Other?

Details about my situation below:
  • My oldest is going off to college and I'm planning to sell my existing 5 bedroom home and buying a smaller home or townhouse in the same city
  • I have enough equity in my current home such that I should be able to sell the home, pay off what's left of the mortgage and buy a new home without needing another mortgage.  Yippee!
  • Selling non-retirement investments would incur substantial capital gains.

There's some obvious pros and cons to not buying a new home until after the current home is sold.

Pros:
  • It's the approach with the least risk. What if something unexpected happens with the sale of the current home thereby leaving me with less $ than expected or taking much longer to sell than expected
  • I'll know exactly how much $ I'm working with when looking for a new home.
  • Paying for new home with cash should simplify the transaction and cash can motivate some sellers

Cons:
  • There's a decent chance I'll need to rent an interim place for a few months after selling the home but before buying and closing on a new home.   In my area that will probably cost about $1,500 per month (maybe more).
  • I'll also still have my youngest child with me (he'll be a high school senior) and I'd prefer not to have the disruption of moving twice in a short time period if I can avoid it, although the moves are not far enough to require him to change schools.  I could wait another year until the youngest is gone but I'd prefer to downsize sooner

I don't know enough about the 'bridge loan' and HELOC/mortgage approaches to understand the costs and other pros/cons with those approaches.

Note: Initially I was going to respond in this very similar thread but it's older than 120 days so the forum software suggested I create a new thread instead:  https://forum.mrmoneymustache.com/real-estate-and-landlording/dumb-question-on-buying-a-new-house-after-selling-the-old/

SwordGuy

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You asked the best approach:

The best way is when:

a) your expenses compared to your income are so low that an extra mortgage payment isn't anything to sweat about, and
b) you've already saved up the money for the downpayment you need on the new mortgage (and any taxes you'll need to pay to access that money), and
c) if you are doing a mortgage, the lender agrees with a) and b), and
d) you have the money saved up to cover the move, and
e) you have the money saved up to cover any immediate repairs that need to be made.

That's the best way.

Anything less is a compromise forced by the reality of the situation you find yourself in.



ilsy

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A couple of years ago my ex-boss, when he was about to retire, sold his home and bought a home in Florida. He didn't realize that his house is going to be sold within the 2 weeks after it got listed, and he was still employed. So he moved into one of my temporary rentals (fully furnished), and paid with cash from the sale for his new place in Florida. Since people who bought from him also paid with cash, the transactions went very fast and painless.

In my opinion, the less organizations/bodies are involved, the better the outcome. Since he was able to forgo mortgages or financing all together, he didn't have to deal with the headaches associated with that. You might find it surprising, but your equity might not be enough to qualify you for another mortgage. Just saying, you better check that (it's pretty easy to check). And if you don't qualify, your options become pretty clear.

talltexan

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I, too, am interested in this.

spartana

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I did it the easy way - got rid of everything and sold the house first, travelled a bit once house-free, and eventually rented a furnished place short term so I could take my time finding a place to buy (and pay cash for).  I'm also single, childless and FIREd so could live in a van down by the river if needed so no rush to buy before or even shortly after I sold.

talltexan

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That sounds like the exact opposite of the easy way.

spartana

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I guess it just depends on what someone considers "easy". To me trying to sell a place at the same time I was looking for a new place seems difficult. Dealing with trying to get a HELOC or loan and that added expense to buy a new place - a place I planned to pay cash for like the OP - deadlines and possible messed up timelines between buying and selling, etc.

So just focusing on selling first, with no rush and no need to find and  fund the purchase of a new place yet, or something happening to mess up either the sale or purchase that may throw everything out of kilter or become very expensive, then being able to take my time to buy a place with a cash offer just worked best for me. Especially since I wanted to do some travel in between the transition. Very relaxed situation for me. But like I said as a single childless FIRE person my needs were probably different than the OPs. The OP pretty much summed it up in their pros and cons list.

Of course I still haven't bought a new place but having lots of fun looking!

BTW what would you consider easy?
« Last Edit: May 22, 2019, 05:56:16 PM by spartana »

Cassie

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We have done it many different ways. The easiest was paying cash for a fixer upper and renovation before moving in. Then moved to new home and sold old one while empty.

talltexan

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I guess it just depends on what someone considers "easy". To me trying to sell a place at the same time I was looking for a new place seems difficult. Dealing with trying to get a HELOC or loan and that added expense to buy a new place - a place I planned to pay cash for like the OP - deadlines and possible messed up timelines between buying and selling, etc.

So just focusing on selling first, with no rush and no need to find and  fund the purchase of a new place yet, or something happening to mess up either the sale or purchase that may throw everything out of kilter or become very expensive, then being able to take my time to buy a place with a cash offer just worked best for me. Especially since I wanted to do some travel in between the transition. Very relaxed situation for me. But like I said as a single childless FIRE person my needs were probably different than the OPs. The OP pretty much summed it up in their pros and cons list.

Of course I still haven't bought a new place but having lots of fun looking!

BTW what would you consider easy?

I'm not very handy and I don't have a great eye for staging a property.

But I'm solid on spreadsheets and planning out adjustable rate mortgage payment schedules.

I consider buying easy and selling hard.

There's a really great undertone I detect in your post, which is that you do not want to rush. I have enormous respect for that. Smart transactions take time. People are smarter when they take time.

BECABECA

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I did this a couple of years ago and I’m really happy with how things turned out. We decided to sell the house first so that we would be in the best situation for negotiating on both buying and selling transactions. On the sale of our house, we didn’t have to feel pressure to take a less than ideal offer since we weren’t under the gun on closing on the purchase of another house at the same time. For the eventual purchase of the new house, we were in a stronger bargaining position with a big cash downpayment and no contingencies on selling a current house. That extra money made on the sale and saved on the purchase more than make up for any second moving cost and temporary renting.

Over the years we had accumulated nearly all our furniture from hand-me-downs, yard sales, dumpsters, so everything was mismatched, and lots of it we didn’t particularly like. Staging the house for sale was key, and it wouldn’t have sold for as much with our crappy furniture in it (or with us and the dogs still living in it!) So before listing our house, we took our time selling off all of our furniture and stuff that we weren’t happy with. We were left with an 8’x8’x8’ pile of all of our worldly possessions. We then rented a short term rental (month to month, ended up being 6 months) that was fully furnished and had a garage, where we moved all our 8x8x8 stuff straight out of the moving van (we each packed a large suitcase of all the clothes, etc we would need for the next 6 months and everything else stayed packed in the garage). We took our time getting to know the potential new neighborhoods and finding the forever house, then really easily loaded all the still packed stuff out of the garage and into a moving van again and into the new place.
« Last Edit: May 23, 2019, 10:00:26 AM by BECABECA »

letsdoit

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I did this a couple of years ago and I’m really happy with how things turned out. We decided to sell the house first so that we would be in the best situation for negotiating on both buying and selling transactions. On the sale of our house, we didn’t have to feel pressure to take a less than ideal offer since we weren’t under the gun on closing on the purchase of another house at the same time. For the eventual purchase of the new house, we were in a stronger bargaining position with a big cash downpayment and no contingencies on selling a current house. That extra money made on the sale and saved on the purchase more than make up for any second moving cost and temporary renting.

Over the years we had accumulated nearly all our furniture from hand-me-downs, yard sales, dumpsters, so everything was mismatched, and lots of it we didn’t particularly like. Staging the house for sale was key, and it wouldn’t have sold for as much with our crappy furniture in it (or with us and the dogs still living in it!) So before listing our house, we took our time selling off all of our furniture and stuff that we weren’t happy with. We were left with an 8’x8’x8’ pile of all of our worldly possessions. We then rented a short term rental (month to month, ended up being 6 months) that was fully furnished and had a garage, where we moved all our 8x8x8 stuff straight out of the moving van (we each packed a large suitcase of all the clothes, etc we would need for the next 6 months and everything else stayed packed in the garage). We took our time getting to know the potential new neighborhoods and finding the forever house, then really easily loaded all the still packed stuff out of the garage and into a moving van again and into the new place.

that is pretty boss. as is paying cash for a fixer upper

ericrugiero

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When we bought our current house it was a foreclosure and we got an excellent deal on it.  Buying it with a contingency of selling our existing home wasn't an option.  Fortunately, our loan on the existing home and the loan on the new home both added up to less than we would be qualified to borrow.  We were able to buy the new home and fix it up while living in the old home.  Making two mortgage payments wasn't a struggle because we had purchased reasonable homes (it helps to be in a LCOL area).  When we had the new home about ready to move into we put the old one on the market and sold it quickly.  There was a bit of risk in having two mortgages but it was minimal due to having cash in the bank and a pretty reasonable total mortgage payment.  The sale of the new home gave us a great jump on paying off the new one. 

I wouldn't have taken this path unless there was an extra incentive to take the risk.  I felt the deal was good enough to take the risk and it worked out well for us.  If I was paying market value I'd probably have made the purchase contingent on selling the existing home. 

spartana

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I guess it just depends on what someone considers "easy". To me trying to sell a place at the same time I was looking for a new place seems difficult. Dealing with trying to get a HELOC or loan and that added expense to buy a new place - a place I planned to pay cash for like the OP - deadlines and possible messed up timelines between buying and selling, etc.

So just focusing on selling first, with no rush and no need to find and  fund the purchase of a new place yet, or something happening to mess up either the sale or purchase that may throw everything out of kilter or become very expensive, then being able to take my time to buy a place with a cash offer just worked best for me. Especially since I wanted to do some travel in between the transition. Very relaxed situation for me. But like I said as a single childless FIRE person my needs were probably different than the OPs. The OP pretty much summed it up in their pros and cons list.

Of course I still haven't bought a new place but having lots of fun looking!

BTW what would you consider easy?

I'm not very handy and I don't have a great eye for staging a property.

But I'm solid on spreadsheets and planning out adjustable rate mortgage payment schedules.

I consider buying easy and selling hard.

There's a really great undertone I detect in your post, which is that you do not want to rush. I have enormous respect for that. Smart transactions take time. People are smarter when they take time.
Well it's more that I'm lazy and don't want to deal with too many things all at the same time ;-).

But I was in a unique selling situation, one that didn't require any staging or fixing since the value was in the land and not the small old house, and I didn't have to, or want to, rush. Plus as a low income FIREd person I doubt I could have gotten a loan for a second house even though my old place was paid off. And cashing out investments would have been a big tax hit. So I pretty much did what @BECABECA did but went on a road trip with my dog while it was up for sale. And got rid of everything except one box and some sports and camping equipment.  Very easy for me as a lazy early retiree.
« Last Edit: May 23, 2019, 01:35:17 PM by spartana »

bacchi

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Sell your current place with a leaseback. You still have to rent but there's only one move (old house to new house) and it gives you the time to find a new house.

Spitfire

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Sell your current place with a leaseback. You still have to rent but there's only one move (old house to new house) and it gives you the time to find a new house.

+1. As long as the buyer is not in a rush to move in, you may be able to rent it back from them after the sale so you can close on your purchase.

slow hand slow plan

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Agree the leaseback. Most home buyers are playing the shell game where you try to have one under contract and closing right in line with the new home closing. Then you transfer the funds between title companies.
people make the timing work everyday but it is stressful.

lhamo

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Is your youngest likely to continue living at home once they are in college, or are they probably moving away for school?  If the latter, then I would probably:

1)  Sell current home now -- lock in your numbers so you know what you can afford to buy for cash

2)  Get a nice rental near their high school -- month to month ideally, but a year lease would also be ok

3)  Start shopping for the new house -- look at  TON of places in your desired neighborhood(s) so that you know the market inside out and backwards.  That way when a good deal pops up, you can nab it with an all cash offer the day it is listed.  If it needs work, you have time to do it.  If it doesn't, you can offer it as a short-term rental until your notice period or lease runs out.

By not being pressured into having the selling of your current house and the buying of the new one timed to fit exactly, you can take your time on both ends and get the best prices both selling and buying.  And if you have to rent for a bit until your youngest leaves the house and then downsize to just enough house for yourself, you have saved a ton on transaction costs -- probably more than the carrying cost of the rental for a year or two or three.

jeromedawg

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Great question - we're going through a somewhat similar situation but one that involves us co-owning and living in a property that my parents co-own the other portion of as investment properties. They're wanting to offload one of their other investment properties via 1031 and are looking to do a combined 1031 exchange where they roll that property and the current property that we co-own into a new place that would still be our primary residence but that isn't a multi-unit cond with neighbors above or... the owners of the upstairs unit hired property management and brought in new tenants with a godzilla child who storms the house whenever they're home. It's super noisy and all on hardwood flooring. It's going to drive us crazy because I WFH full-time and my wife is also at home with the kids (though we've been sending our oldest to preschool but just twice a week and for a few hours).

We were considering doing a reverse 1031 exchange but it's pretty expensive at $7k minimum and requires you to advance/front the cash which in our case would likely require an ARM Loan (and these aren't super favorable). The main reason for doing that though is to be able to lock-in a place and move into it ASAP without worrying about selling the existing properties. But the burden of the loan is a lot to consider as is the cost of doing the reverse exchange. I think what it's going to come down to is selling the place first, then either doing a rent/lease back OR moving out earlier (if the upstairs neighbor situation becomes too unbearable... we already approached them the first day when they moved in after their daughter stormed the house and nothing has changed).

I feel like these are perfect examples of "you can't have your cake and eat it too" situations. 
« Last Edit: May 27, 2019, 09:09:14 PM by jeromedawg »

talltexan

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Would the arm loan be truly adjustable, or is there a fixed rate period?

Things worked out nicely with our 5/1 hybrid ARM, and--if you look--rates have been dropping. You might come out ahead with that kind of a loan.

Car Jack

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First, I'll tell you what I will be doing, then I'll give you my 100% applicable story of what I have done.

I live in an unusual house on 13 some odd acres of forest.  The property has tons of springs and small streams that form so although that's a good amount of land, the prior owner and builder of the house did probably a dozen test perc holes that all failed.  Anyways....I've looked into downsizing not only to a smaller house but to one in a cheaper nearby town.  Way cheaper.  I've done the math (I've got 3 engineering degrees).  And what I've found is that unless I'm going into some small apartment rental, I'll save nothing, zilch, nada.  So be SURE you calculate in all the costs to sell and all the costs to buy.  You may be so surprised that you end up doing what I now plan.  To die in my present house.

Ok...what I did.  Our previous 800 square foot starter home went on the market not long before reaching agreement to purchase our present house.  We included a contingency that we first needed to sell out existing house.  This, of course could be a huge sticking point, but we were written specifically into the seller's realty agreement as we came to them before they contracted a real estate agent.  So if we bought the house, no commission for the agent.

Anyways....how'd that work?  We actually accepted an offer 3 weeks later.  We lost some money on that house, but this was the end of 91 and Massachusetts housing was nose diving following a housing bubble.  We set up closings for both houses for the same day.  In the morning, we attended the closing with our lawyer, selling the house.  In the afternoon, we joined our friends at our house to finish any last thing to load into the truck and it was off to the new house.  While in transit (all of 6 miles), our lawyer handled the buying.  After his closing, he met us at the new house for any last signatures and such and we were done.

I would highly recommend you hold yard sales, craigslist the crap out of all your belongings and make it so you can easily move without paying someone to help.  Heck....coming up to the closing day, I was at Home Depot returning a 2x4 I had bought a year earlier.  I wanted everything possible gone.