If you’ve looked at home prices on the web recently, you’ve likely seen the historically high home sales prices across the country. As HomeLight discusses in their Top Agent Insights for Spring 2021 report 97% of real estate agents believe that low mortgage rates are fueling the demand from home buyers, and 97% of agents also believe that their markets are currently favorable for sellers.
While now’s a great time to put your home on the market, selling a home is just half of the relocation process. You also need to ensure you have another place lined up where you can move. With inventory at all-time lows, keeping a sale and purchase in sync can be near impossible. Fortunately, there are a few options you can explore to make the process more manageable.
Know the challenges of buying and selling a home at once
Some of the common roadblocks to buying and selling your home at the same time include not having enough cash on hand to make your purchase, complicated logistics, the risk of getting bumped by non-contingent offers, and also the “daisy chain” effect. The “daisy chain” effect occurs when multiple stakeholders have their own contingencies in place, and they reach a level where a failure with any contract can cause a domino effect where all transactions fail. Homeowners with VA or FHA loans also face additional hurdles because these loans only allow the homeowners to have a single outstanding mortgage at a time.
Lending options to bridge the financing gap
While these challenges may seem impossible to overcome, a trusted real estate agent can help you overcome the previously mentioned home buying and selling challenges. For example, contingency-based offers allow sellers to make an offer that is only valid if they’re able to sell their home within a specific period of time. Unfortunately, in today’s tight housing market, sellers are less likely to accept contingent offers.
A more practical option to help make transactions possible is to take out a bridge loan, a relatively high-interest loan that can be used to fund the down payment of your new home. Most borrowers will take out a bridge loan as close to their home’s closing date as possible in order to prevent excessive costs. It’s important to note that these loans generally require good credit. If you have a significant amount of equity in your home, you may be able to use a home equity loan as a bridge loan, however it’s not advisable because it could impact your ability to qualify for a mortgage.
Looking beyond traditional loans
If traditional financing doesn’t fit your needs, don’t feel discouraged. If you live in an area where rents are relatively high, you could just rent out your old home and turn it into an extra source of income. You could also ask the home seller to add a rent-back clause in the sale agreement. This allows you to rent the property from the owner for a specified period of time (usually a couple of months) while you sort out the sale of your own home.
Overall, although buying and selling a home can be difficult, with the right planning you can make the transaction as smooth as possible.