Options for buying a new Prescott home when selling your current home
Buying a Prescott home is a huge endeavor. The paperwork, deadlines, stress and research can all be a little stressful. Couple it with selling a home at the same time, and it can turn into one big, overwhelming headache. Here are a few things to keep in mind when you’re buying and selling a home simultaneously.
Getting a New Mortgage
It’s easier to get a new mortgage when you’ve sold your old home. You won’t have two mortgage payments holding you back. Logistically, selling first is usually the best way to go. But it does come with a few disadvantages, too.
For one, you could sell without having anything lined up. You may have to rent while you look for a new home, or keep some belongings in storage. But there are ways around this, which we’ll get to later.
If you buy a home before your sell your old one, you have plenty of time to move. This gives you more time to get your home ready to sell and ease into the process.
Of course, if your home doesn’t sell for a while, you could possibly be paying two mortgages at once. If your home is already paid off, that’s not a big deal, but most of us would struggle with two mortgage payments. Plus, it’s harder to qualify for a new mortgage if you have two mortgage payments, because you have a much higher debt to income ratio.
Another option for those who want to sell first but don’t want to move into temporary housing while they look for a new home is to rent their old house back from the buyers for a few months. Not all buyers will accept such a deal. But investors and buyers who aren’t in a hurry to move in might be willing, especially for a financial incentive or to be the ones whose offer is chosen among multiple offers for your home.
Current market dynamics could play a large role in deciding whether buying first or selling first is the right move. In a buyer’s market, it’s possible to make an offer on a new house contingent on the sale of an existing Prescott home. But in the seller’s market that exists in many cities, those kinds of contingencies are unlikely to be accepted.
While selling first might seem like the best bet, it also depends on the market. Research prices in the areas where you’re both buying and selling. You should find out whether the market favors sellers or buyers. That way, you can optimize your stronger role while protecting yourself in the weaker role, as they put it.
As a general rule, you want to sell first in a buyer’s market. In a seller’s market, you might consider buying first, provided that your property can indeed sell quickly.
Ideally, you want the closing date on your old home to come after your new home. You can make the selling and buying dates line up a little better by preparing for one while actively doing the other.
For example, if you’re actively selling your current home first, prepare to buy a new home in the meantime. Research your options, keep your credit score high, and research loans.
Add a Contract Contingency
You can also line dates up by asking to add a contingency to your contract, whether you’re buying or selling a Prescott home. If buying, you can ask the seller to make your purchase contingent upon the sale of your current home. Nolo explains that this might work for sellers who are having a hard time finding a buyer. They add that you should be ready to give them reasons why your home will probably sell quickly.
If selling, you might negotiate with your house’s buyer instead. Ask to add a contingency to the contract that makes the closing date line up with the finding and closing date on a new home
Using Bridge Loan Financing
A bridge loan is one that is used to provide funds needed for a short period until another source of funds becomes available. In the home loan market, a bridge loan, sometimes called a “swing” loan, allows a home buyer to close on the new home purchase before closing on the old home sale. But a bridge loan will not be available unless you have a binding contract of sale on the old house. The sale agreement is the lender’s security.
Bridge loans are available specifically for those who are buying and selling a Prescott home simultaneously. You get a short-term loan to cover the down payment on your new Prescott home before selling your old one.
Basically, it’s a short-term loan that uses your old home’s equity to help pay for your new home. You use the money to put a down payment on your new house, and then repay the loan when you sell your first home. With a bridge loan, you can put your Prescott home on the market without any restrictions, according to About.com. You could also get a home equity loan or HELOC, but you may not be able to list your house right away. Some also opt to get a short-term loan from a family member to cover the down payment and closing costs.
Prescott Real Estate Report April 2017:
Prescott Area listing inventory continues to tighten in April seeing small gains in new listings at 495 current ‘Active’ listings. Absorption Rates (number of months of listing inventory based on the current monthly sales rate) dropped again and are at 10-year lows. These factors have helped prices to continue to creep up-April 2017 is up 10% over the same time last year.
Top Prescott Subdivisions
Donny Karcie, MBA – RE/MAX Mountain Properties
731 W Gurley Street, Prescott, AZ 86305