Preparing to Buy a New Property While Owning Your Current Home: What Are Your Options?
If you’re considering buying a new property while still owning your current home, you’re not alone. Many homeowners face this situation when looking to upgrade, downsize, or invest in another property. It can feel like a juggling act, but with the right approach, you can smoothly transition from one property to the next. Here’s a breakdown of the options available to help you make this happen.
1. Sell Your Current Home Before Buying a New One
The most straightforward and traditional method is to sell your current home before buying a new one. This strategy gives you access to the proceeds from your sale, which can be used as a down payment on your new property.
Pros:
- You avoid paying two mortgages simultaneously.
- You can use the sale proceeds to strengthen your purchasing power.
Cons:
- You may need temporary housing if there’s a gap between selling and buying.
- The market could shift, and you may face increased competition or prices while searching for your new home.
Tip: A “rent-back” agreement could give you extra time in your current home after selling, allowing you to buy your new property without the pressure of immediately moving out.
2. Bridge Loan
A bridge loan is a short-term loan that allows you to finance the down payment on your new property while your current home is still on the market.
Pros:
- You can buy a new home without having to sell first.
- It allows for a smoother transition between homes.
Cons:
- Higher interest rates compared to traditional loans.
- You’ll have to pay back the loan quickly, typically within 6 to 12 months.
Tip: Bridge loans work well if you’re confident that your current home will sell quickly.
3. Home Equity Line of Credit (HELOC)
A HELOC allows you to borrow against the equity in your current home and use it as a down payment for the new property. It works like a credit card, giving you a revolving line of credit that you can tap into as needed.
Pros:
- Flexible repayment terms.
- You can use the equity you’ve built up over time without selling your home first.
Cons:
- You’re taking on additional debt.
- Repayment could be challenging if your home doesn’t sell as quickly as anticipated.
Tip: Make sure you understand the terms of the HELOC and that you have a plan to pay it back once your current home is sold.
4. Rent Out Your Current Home
If you’re not ready to sell your current property or see potential for passive income, renting it out could be a great option. This way, you’ll have rental income to cover the mortgage while buying your new property.
Pros:
- You can turn your current home into an investment.
- Rental income can cover your existing mortgage or supplement your new one.
Cons:
- Being a landlord requires time and effort.
- You’ll need enough financial stability to qualify for a second mortgage.
Tip: Be sure to understand the rental market in your area and the responsibilities that come with being a landlord.
5. Contingency Offer
In some cases, you can make an offer on a new home that is contingent on selling your current home. This means the purchase of your new home is dependent on the sale of your existing home.
Pros:
- Less financial risk, as you won’t be stuck with two mortgages.
Cons:
- Sellers may be hesitant to accept contingent offers, and next to impossible in our market.
- It can limit your negotiating power.
Tip: Be transparent with sellers and work with a real estate professional to navigate contingent offers effectively.
6. Cash Out Refinance
This option allows you to refinance your current mortgage and cash out some of the equity you’ve built. You can then use that money to purchase your new home.
Pros:
- You can access equity without selling your current home.
- Potentially lower mortgage rates depending on market conditions.
Cons:
- You’re increasing the debt on your current property.
- Closing costs and fees may be involved in the refinance.
Tip: Ensure that the new monthly payment fits your budget, especially if your home doesn’t sell as quickly as expected.
Which Option is Right for You?
Every homeowner’s situation is unique, and the right option will depend on your financial situation, timeline, and goals. Consulting with a real estate professional (that's me) and financial advisor will help you evaluate your options and create a plan that works for you. The key is deciding a strategy and being prepared. You wouldn't want to find your dream home and find out that you can't buy it because your plan was not well organized, prepared and in motion. Whether you’re selling first, leveraging your home equity, or renting out your current property, there are strategies to make your transition seamless and stress-free.
Are you thinking about buying your next property? Contact me today to explore your options and find a solution tailored to your needs. I'm here to guide, protect, and make your next dream home a reality.
