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What happens if I sell my house, but then I can’t find one to buy?
Dated: March 9 2021
The solution may be to buy first and sell second, with the help of creative lender financing.
It's no secret: Homes-for-sale inventory is at an all-time low. This is a great situation for home sellers, who are rolling in the bliss of multiple offers at thousands of dollars over asking price. But for home buyers who want to take advantage of historically low interest rates, the timing of this low housing inventory couldn't be worse. Buyers are finding themselves in a situation where they’re eager to buy, but suddenly there are no homes.
And what about the buyer who is also looking to sell a house? These buyer/sellers are feeling totally stuck; they’re leery of putting their homes on the market, quickly selling, and then essentially finding themselves ‘homeless’ with nothing that’s available to buy.
So this brings up an interesting question: Do you have to do it this way?
What if there was a way to alleviate these dilemmas and to buy your new home BEFORE you sell your current home? Let’s talk about that.
Should I buy before I sell?
Yes, you should absolutely consider this option, if it’s feasible for you. The inventory of homes for sale is so low right now, that there is a ton of competition for those homes.That means it’s a lot easier to sell a house right now than to buy a house.
So I can buy before I sell? In that case, what are the types of loans that could help me?
If you qualify to do so, yes you can! There are a number of creative home financing products out there to facilitate buying before selling.
You can buy non-contingent. Some sellers will actually qualify to buy a home without having to sell their current home. These loans would be based on several factors, like the buyer’s available cash and their credit score. One of the biggest factors is debt-to-income ratio. A homebuyer’s ratio percentage of debt owed compared to their income determines if they can qualify for a mortgage. Many of those who sell a house are moving up, not down, so they would need more money for their new mortgage payment; this isn’t a workable scenario for you if you’re moving up.
You can use a bridge loan. A bridge loan (also known as a swing loan) bridges the gap between a sale and a purchase. It’s short-term, high-interest, and it works. Bridge loans let a qualified borrower pay off their mortgage (and often some other debt) and drastically reduce their monthly payment. It means that a borrower can take out a mortgage on their new house without having a sale contingency. And because of the robust seller’s market we’re in right now, the borrower would be able to quickly sell their existing home and re-ammortize the mortgage using the sale proceeds. Note that not every buyer will be able to qualify for a bridge loan.
You can use secondary-market lenders. Some lenders do not use traditional mortgage funding through Fannie Mae or Freddy Mac. Instead, they might use self-funded loans with investors that back these loan products. The downside to secondary-market loans is that they are usually higher-interest. But the upside is that they can help you buy a home, and then refinance later into a primary market loan.
Are there tax implications if I buy a home before I sell my house?
Not if you’ve lived in your current home for at least two years and the home is your primary residence.
If you’ve lived in your home for less than two years, you’ll probably need to pay capital gains on any profits from the sale of your home. Capital gains are payable in your annual taxes, in the year you sell your home.
Am I being irresponsible to consider buying before selling?
I’m a realtor, so the short answer is “no”. The longer answer is also “no.” A good lender will have equity formulas that show you how fast your new home will grow equity; and most buyers are astonished when they see these favorable numbers.
Given our historically-low interest rates right now, it’s likely that you will never have as much buying power or instant equity in your home as you do right now. Picture yourself ten years from now at a cocktail party with your friends, sipping your martini, and bragging about the heavenly interest rate and creative financing you got way back in 2021; it will be that big of a deal.
Don’t let this current market scare you. Now is an incredible time to buy a home. There are a lot of things working in a buyer’s favor, and you should embrace this exciting real estate market.
What do I do next?
The CallUpGollop Team - eXp Realty partners with several outstanding mortgage lenders who have deep experience in creative home financing. Call me now - I will help you connect with the right lenders and get you on-track to buying and selling your home.
I look forward to hearing from you,
Licensed Realtor, Stand-up Comedian, and Retired Police Sergeant. I took my 25 years of law enforcement experience, threw in my experience as a stand-up comic and college teacher, and used those ideal....
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