How to Upgrade to a Newer Home in Today's Market
Own an older or smaller home and need to upgrade but you are nervous because of this aggressive market? There are options you can do to make it happen.
One of the great parts about owning Real Estate in this market is the fact that when you sell, you are going to get top dollar for you home. The most bang for your buck, and most likely have a pretty penny stored in the equity of your home.
The hard thing about owning Real Estate in this market is that if you sell your home, you need somewhere different to live. If you are going to buy a new home then you are in the same situation buyers are in, and that is securing a contract. I know that can appear scary for those who are hoping to upgrade their home. Will you end up homeless? Will you have to put everything in storage? Will you have to move twice? If you go about it the wrong way, yeah.... those things could happen to you. I highly suggest hiring an agent to help you navigate this minefield. I'm going to go over a few options for how to sell your home and buy a new one and talk about the pros and cons of each.
Buy Before You Sell
Sell and Then Buy
60 Day Lease-Back
Purchase Contingencies
Before I go into the details of these options, I think it is important to know where the Real Estate Market is at here in Utah. If you haven't already, give a quick look at my other post March Mayhem to get up to date on the Real Estate Market. If not, then these options might seem out of context and you will not understand why I am highlighting these options over other ones.
Buy Before You Sell
The name explains the process quite perfectly. Buy your next home before you sell your current home. The benefits of it are that you only have to move once and at your own pace. You don't have any tight deadlines that you must meet. It is the most simple way of upgrading. There are a few criteria you need to hit, to be able to accomplish this. You need to have a big enough down payment to initially put down (It cannot be from your equity, because you wont sell your home until after you purchase). You need to qualify for both of the homes at once, which a lender may be pretty strict on. Also what if you struggle at selling your old home. (you shouldn't in this market) Then you'll be stuck with two mortgages. (Make sure to plan other exit strategies, such as renting your old home). If that option isn't a fit for you or it restricts you from being able to move up, then keep reading for other options.
Sell Before You Buy
Again, the name explains the exact process. The benefits of this are that you can use your equity from your home as your down payment. You should more easily qualify for the home you wish to upgrade to. You only need to focus on one step at a time and don't have to worry about two mortgages. The difficulties of this is that you need a place to live in between homes. Families, friends, find a short term rental. It can't be too short (hotel) because it would be too expensive to stay there for the amount of time a contract takes to fulfill (30 days). And it can't be too long (unless you're planning on taking your time finding your next home). That is the big hang up with this way of upgrading. Unless you can arrange some temporary living situations, you're out of luck. There is an option for that. Check the next step below.
60 Day Lease-Back
Essentially this is the sell before you buy but with very strict deadlines. You sell your home with the agreement to your buyer that you are going to lease back(rent) the home for 60 days after you have sold it. You'll have to pay an agreed upon rent and got to keep the home in good shape (especially since it is no longer yours) but it makes it so you only have to move once and fixes your living situation for in between homes. The issue is the tight deadline. You have 60 days until you have to be out of the home. A contract typically takes 30 days. So you have 30 days or a month, to find your next home and get it under contract. If you don't succeed in this or can't find a home you like, you will have to find another place to stay. Your buyer usually cannot do longer than 60 days because of their loan. (loans typically require that it is your primary residence, making them very strict on those leasebacks)
Purchase Contingencies
This one is a possible way to do a simultaneous close. Meaning that you close on both homes around the same time. When you list your home you can make it contingent upon you finding a home you want to buy. So any buyer of your home has to agree that you wont sell until you secure a contract for a home. This gives you a chance to close at the same time. The struggle of that is if your buyer backs out for whatever reason, it means that your purchase is going to fall through and you'll lose your earnest money you've tied to your purchase contract. Not to mention the difficulty of aligning dates and moving in a tight time frame. This one is the more difficult and risky options to do, but it is an option.
You could mix the purchase contingency and the 60 day leaseback. Giving you more time to search for a home, time to move, and you wouldn't need to be forced to such tight deadlines. The issues still holds of a your sale falling through and that hurting your purchase and costing you money, but you'll have a little more wiggle room to try and make that happen.
Those are some options on what you can do if you desire to upgrade your home. Here is a Step by Step Guide on buying and selling your home. A hard part of this market is securing a contract for purchasing a home and navigating all the details on the multiple offers on your home you will most likely get. Do not hesitate to reach out if you need advice or help with those things.
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