Suggestions for Buying a House When You Already Own a Home

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justsomeguy2018
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Suggestions for Buying a House When You Already Own a Home

Post by justsomeguy2018 »

We are still in our 1st house, meaning, our only experience with home buying is from the perspective of being a renter and not having a 2nd mortgage to think of.

What is the best approach to buying a house (in this case upgrading to a more expensive house) when you are a homeowner and still owe a pretty large chunk of your 1st mortgage (~75% LTV). What I mean is:

(1) Do you keep your 1st house and try and rent it out (i.e. become a landlord) if you have the cash handy for a 20% down payment?
(2) Do you make all your buying offers contingent on selling your own house in case you run into trouble selling your house and hit a cash crunch? And wouldn't this be a big potential problem in a high demand tight inventory market?
(3) Do you sell your house first, rent somewhere in the interim, then work on buying the new house?
(4) Do you buy the new house and pray your old house sells soon so you aren't stuck paying 2 mortgages?
(5) Is it better to empty the house and/or stage it so you aren't living in it when trying to sell it?
(6) What sort of repairs/upgrades if any should be done to existing house to help it sell?
(7) How does the timing work of moving into new house and moving out of old house? Or, do you put your home on the market then hope you find a new home before someone buys your house? Or wait to put your house on market until you find a home you want to buy or close on?
(8) Anything else to know or keep in mind?

Not that it's relevant to my question but we are outgrowing our current house space wise and our incomes have increased 41% since we bought the 1st house so thought it might be time to upgrade with mortgage rates being so low and being homebound for at least another 6-9 months (per workplace communications).
runner3081
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Re: Suggestions for Buying a House When You Already Own a Home

Post by runner3081 »

We have done #4 twice now. It worked out both times.

Going contingent would have never worked, markets were good when we bought. It was a risk, but we qualified for both mortgages during those times.
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LilyFleur
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Re: Suggestions for Buying a House When You Already Own a Home

Post by LilyFleur »

I've done 2 and 3.
trufflepig
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Re: Suggestions for Buying a House When You Already Own a Home

Post by trufflepig »

If you can afford to do #4 that is clearly the best option and usually the cheapest. It really only costs you the interest and taxes (minus tax savings) on your first home since any principal paid will be returned when the home sells. Moving only once is a huge benefit. You can mitigate some risk by doing any work needed on the current house while you search for the new house. When we did this we had our current home on the market within a couple days of having our offer accepted on our new house.
singledigit12b
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Re: Suggestions for Buying a House When You Already Own a Home

Post by singledigit12b »

Going through this process now except my home is paid for. Both the markets I’m selling in and buying in are in hot markets. I am taking out a stock secured loan equal to 20% of the new home purchase from my former employer’s credit union and combining that with cash I had reserved and some of my cash like savings so I will be a cash buyer. I will pay off the loan from the proceeds of my current home’s sale. Makes me a little nervous buying before selling but now I can take my time finding the right house without moving twice.
wilked
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Re: Suggestions for Buying a House When You Already Own a Home

Post by wilked »

1. The general advice is to not do this unless you’d be willing to buy an equivalent property as a real estate investment. Generally not a good idea
2. You can, just expect to lose a lot of bids as sellers avoid those contingencies if they can. In a slow market it can work ok.
3. You can. Depending on how much furniture you own this can be a pain and expensive. I think if I was going to do this I would just commit to renting for 2 years or so to minimize transitions over a short period.
4. You can. No need to pray though. If you price it to sell it will sell. If you don’t do your diligence to understand market pricing and overprice it you might have to learn the hard way.
5. I think it works both ways. It usually costs money to stage it. And storing furniture also costs money. I would go the other way, take the opportunity to declutter and make the house look great!
6. If you get a good realtor he/she will tell you this. Generally it’s patch and paint, get the landscaping looking good, and de clutter. Any significant project (>$1000) usually doesn’t have much of an ROI
7. Again, something a good realtor could advise. If you can get approved for a new mortgage without selling, I’d list it once you’ve got an approved offer. Try and stall the purchase and accelerate the sale of the current home from that point.
8. I think you’re likely overthinking it. Spend the energy to find a good realtor (this from a person who thinks realtors are overrated) and make them earn their keep with these items you are pondering.

Good luck
shess
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Re: Suggestions for Buying a House When You Already Own a Home

Post by shess »

runner3081 wrote: Fri Sep 04, 2020 8:52 pm We have done #4 twice now. It worked out both times.

Going contingent would have never worked, markets were good when we bought. It was a risk, but we qualified for both mortgages during those times.
We've done #4 a couple times, also. We negotiated a longer closing for this reason. Both times, our real-estate market was in a hot phase, where houses list one weekend and sell on Thursday, so it might have been luck, I would be more nervous about doing this right now, since the market seems softer.

That said ... my understanding is that buyers have a tremendous amount of power in the relationship, and can often get out of the deal with most of their deposit even if they didn't have explicit contingencies. The theory being that the buyer can just refuse to close and be intransigent about the deposit, in which case you end up sitting around waiting for arbitration. Does the seller want to sit there for three months with the house off the market arguing about the deposit, or do they want to cut a deal and get it back on the market? I would not encourage you to go in with that mindset, because you'll probably burn your bridges with your local realtors, but if you do your best planning and the day after you put in your offer something happens which makes selling your house impossible and now you just can't buy the house you offered on, you probably can mostly salvage things.
Johnny Thinwallet
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Re: Suggestions for Buying a House When You Already Own a Home

Post by Johnny Thinwallet »

We did #4. We owned both homes for exactly 4 weeks (amount of time from closing to purchase and closing to sell).

We didn't move in to our new home until 3 weeks after purchasing as we had some things we wanted to get done before moving all our stuff in. Plus during those 3 weeks we slowly moved smaller items that'd fit in a car (i.e. boxed items) so that the "real move" day was nothing more than large furniture.

If you can afford #4, I'd recommend it.
BillyK
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Re: Suggestions for Buying a House When You Already Own a Home

Post by BillyK »

Contingency purchases are common in most real estate markets. The reality for many buyers is that it is a necessity. First you make sure you have a strong buyer, deposit and contract on your subject property to pitch to the sellers of the home you wish to purchase. Then make sure you have ample time for your closing date on your subject property to negotiate the purchase, financing and closing date of your new home.

Yes, it can be nerve wracking, particularly working out the timing but it is done all of the time. Real estate agents and title companies are accustomed to routinely juggling these types of sales. If you are using professional movers, check with them too on how much advance notice you need to provide them for scheduling your move. Ideally, you will close both properties the same day. However, if there is a gap between the two, the movers can often temporarily store your items which is something to discuss with them.
PS241
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Re: Suggestions for Buying a House When You Already Own a Home

Post by PS241 »

Bridge Loan?

We are doing this exact thing at the very moment. Thankfully our house sold quickly so the bridge loan will only exist for 2 weeks.

I have read on the internet to avoid this but seemed pretty easy to me. Small town local bank.
Scooter17
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Re: Suggestions for Buying a House When You Already Own a Home

Post by Scooter17 »

I’ve done #2 both times
mptfan
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Re: Suggestions for Buying a House When You Already Own a Home

Post by mptfan »

(9) Save up enough money to pay cash for the second house, then sell the first house at your leisure after moving in to the second house.
BillWalters
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Re: Suggestions for Buying a House When You Already Own a Home

Post by BillWalters »

Just did #4. Made the mortgage process more difficult as they have to underwrite your ability to service both mortgages indefinitely, though.
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