For move-up buyers, making the transition from one home to the next — particularly when you’re selling and buying simultaneously — requires a bit of fancy footwork.
There are some fortunate homeowners who can afford to own two houses at the same time without any financial stress, but most people need to make some strategic money moves before they can transition from one home to the next.
Here are six steps to help you juggle both houses:
- Find out what your current home is worth. The median sales price in the Washington area rose 5.9 percent to $445,000,000 in December 2018 compared with December 2017, according to Bright MLS. That’s on top of several years of price appreciation. While there are online home-value estimates available, the best way to evaluate your home’s current market value in the context of your neighborhood and the pace of sales is to consult a real estate agent who has expertise in your neighborhood.
- Get some market insight. The agent can share hyperlocal information about how quickly homes are selling and in what price range. Regionally, the D.C. area is still suffering from a shortage of homes for sale. Active listings were down again in December by 0.5 percent compared with December 2017, according to Bright data. While that doesn’t sound so bad, active listings are 51.4 percent lower than the peak in December 2010, according to Bright. While that’s hard on buyers, as a seller that could mean you’ll face less competition from other homeowners.
- Decide your risk tolerance for buying or selling first. When you’re moving up to your dream home, you’re both a seller and a buyer, so you’ll need to understand the dynamics of your market from both points of view. In a market where homes sell fast, some people opt to buy first so they feel assured they will be moving into a home they truly want and don’t have to move twice. Depending on market conditions for your neighborhood and property type, you may be able to make an offer contingent on the sale of your home, although that is less likely in the current market than it has been in the past. Some homeowners, though, would rather sell first to have clarity about their profits.
- Identify your sources for cash. If you decide to buy first, you’ll need cash for an earnest money deposit and a down payment on your dream home. Start by talking with a mortgage professional. One solution could be a home equity line of credit that you take out well before you put your home on the market. You can use that money for your new home and repay it when you sell your current home. Just be sure that you don’t face a penalty for an early payoff, and make sure you qualify for both the old property mortgage, the new mortgage and the home equity line. You can also borrow from a retirement account — as long as you research all the rules and tax implications — and repay yourself as soon as you sell your home. This is a risky strategy, so understand it fully before you go down this path.
- Consult a lender about financing options. Bridge loans, which are short-term loans meant to help you transition into your next home, are typically interest-only loans for six months to a year. Typically, they are underwritten by the equity in your current home. You will have to qualify to make payments on your new home loan, your current home loan and the bridge loan, but because this is anticipated to be a temporary situation, lenders can often be more lenient in approving the financing.
- Position your home sale for maximum profit. Whether you sell your home before or after you buy your dream home, you should make sure your home is in prime condition, staged and marketed to appeal to buyers.
Following these steps can put you on the path to fulfilling your dream of a new home.
Jon Coile, chairman of Rockville-based multiple-listing service Bright MLS (formerly MRIS) and president of Champion Realty in Annapolis, Md., writes occasional commentary on the Washington area housing market.