How Do You Buy A House When You Own A House?
Many first-time home buyers assume they’ll live in their home for years to come, but statistics tell a different story. The average American homeowner stays in their home for about 10 years. First-time buyers who invest in starter homes are more likely to switch homes more often.
You’ll want to sell your home and buy a new one at some point in time if you’re like the majority of Americans. Here’s a closer look at how you can buy a new home as you simultaneously sell your old one.
Check The Housing Market
The first thing you need to do before you list your home is to check your local markets. Ideally, you’ll be able to sell your old home first and use the proceeds from the sale to pay for your new home. Selling your home first could help you get access to a larger down payment even if you don’t own your home outright. Closing a sale first will make it easier to buy a more expensive property if you plan to move from a starter home to a larger home. Start your search by looking for comparable properties to yours to get an idea of your area’s average home price.
It's a good idea to talk to a real estate agent before you price your home or put it on the market. Real estate agents are local professionals who understand how home prices move in your area. Your agent can help you decide how quickly you need to move when you find a home you’re interested in and how you can price your home to sell.
How Are Your Finances?
Do you live in a competitive housing market? If so, you might want to buy your new home before you sell your old one to get the house you want. Before you make this type of commitment, make sure you’re financially prepared to handle two mortgages.
Some factors to think about include:
- Your credit score: Most mortgage lenders have a minimum credit score you’ll need to meet to qualify for a loan. For example, let’s say you want a conventional mortgage. You’ll usually need a credit score of at least 620. On the other hand, if you have a lower credit score, you might want to consider an FHA loan. FHA loans require a5% down payment for credit scores of 580 and higher. Your credit score can be in the 500 – 579 range if you can make a 10% down payment. However, the minimum credit score at Rocket Mortgage®is 580.
- Your savings: You need to continue making payments on your current home loan while your property is on the market. Before you apply for a new mortgage loan to cover your next property purchase, calculate your new monthly payment. Check your savings accounts and be sure that you can cover both of your mortgage payments – at least until you sell your home.
- Your current debt: Do you have any other types of debt besides your current mortgage? Your debt plays a significant role in your ability to get a mortgage. Focus on paying down your other sources of debt before you apply for a new loan to increase your chances of approval.
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Listing Your Current Home
List your home and start showing it to buyers before you start shopping for a mortgage or a new house. Here’s how to get started.
- Choose a listing agent. A listing agent is a special type of real estate agent who represents sellers. Working with a listing agent is essential if you’re selling and buying a home at the same time. Your listing agent can help you price your home appropriately and use their connections to get you in touch with more buyers and service providers (like professional photographers).
- Depersonalize your home. Buyers want to be able to envision themselves in your space. You can increase the likelihood of a sale by depersonalizing and decluttering your home prior to showings. Paint your walls a neutral color, clear off countertops and make minor repairs to help your property shine.
- Take clear photos. Quality photos are essential if you want to sell your home using an online listing. Consider working with a professional photographer to take pictures of your property. Listings with professional photos sell faster and attract more interested buyers. Don’t have the cash to work with a photographer? You can take your own photos with a smartphone camera. Be sure to photograph every area of the inside and outside of your home during the day.
- List your property. Your listing agent will help you set up online listings for your home, including his or her contact information. He or she will also speak to other agents in the area and conduct showings on your behalf. From here, all you need to do is negotiate your home’s final selling price.
Find Your New Home
Once your home is on the market, it’s time to start shopping for your new home. Here’s what you need to know about finding the perfect property.
- Work with a real estate agent. A real estate agent can help you find properties in your area, submit a strong offer letter and negotiate your home’s selling price. Choose a local real estate agent or REALTOR® to help make the shopping process easier. Rocket HomesSM Real Estate LLC can help match you with the perfect agent in your area.
- Set a budget. Before you start shopping for a home, set a rough budget. Your home’s listing price, local property values and your real estate agent’s input can all help you decide how much to spend on your next home.
- Make a list of wants and needs. Everyone has unique wants and needs in a home. Access to public transportation might be high on your list of needs. If you want to start a family, a second or third bedroom might be essential. Create a list of your top priorities and give it to your agent. Your agent will use this information to narrow down your home search.
- Attend showings. Now that you know how much you want to spend and what you want in a home, start browsing properties on the market. Online databases are a great place to get started but your real estate agent can also introduce you to more properties. Keep your eyes open for things that need to be repaired, replaced or removed.
Loans Available When You Are Selling And Buying A Home
If there’s a gap between the time when you buy your new home and when you sell your old home, you may need to take out a short-term loan to cover your expenses. Bridge loans and home equity loans can help you free up some cash.
A bridge loan is a short-term loan based on your current home equity. The more equity you have in your current property, the larger the bridge loan you can qualify for. You’ll use a portion of the proceeds to pay off your bridge loan when you sell your home.
Bridge loans can provide you with financial flexibility while your home is on the market. You won’t need to worry about including a property sale contingency when you make an offer on a new home. Your bridge loan helps you manage two mortgages, which can make your offer more appealing. Note that the interest rates on bridge loans are often higher than other types of loans. Rocket Mortgage® doesn’t currently offer bridge loans.
Home Equity Loan
A home equity loan can help you fund your next down payment while your home is up for sale. Home equity loans allow you to tap into your existing home equity. These are secured loans that use your home equity as collateral.
You’ll usually pay more in interest on these loans than on your primary mortgage. You must also already have equity built in your home to take out a home equity loan. Let’s say you took a cash-out refinance recently or you’ve only been in your home a few years – you might not have enough equity to qualify.
Once you close on your home equity loan, you’ll receive a lump sum payment from your lender, which you’ll make payments on over a predefined loan term.
Please note that Rocket Mortgage® doesn’t currently offer home equity loans.
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What To Do If Your Home Does Not Sell
Your home has been on the market for months, you’ve moved out and local buyers just don’t seem interested in your home. What can you do? One option is to rent out your property.
Rent Your Home
Renting out your home can be a profitable way to cover your mortgage payments and bring in some extra cash. Begin by checking out comparable rental units in your area on a real estate database like Zillow or Trulia. Create a financial plan, clean up your space and list your home for rent. A good way to get started is with an online rental application and lease agreement template.
Keep in mind that being a landlord isn’t just about collecting a rent check at the beginning of every month. You’re responsible for understanding and obeying your state’s tenants’ rights laws. Violating these laws can give your tenants the right to break their lease. For example, in most states, it’s illegal for the landlord to enter a property without at least 24 hours’ notice, except during an emergency. You must also make repairs quickly and follow the legal eviction procedures to remove tenants – even if they aren’t paying rent. Be sure to do plenty of research before you list your home to make sure you can handle all parts of the job.
Don’t have any experience as a landlord? Consider hiring a property management company to help you. These companies manage the day-to-day operations of owning a rental property and can even help you find tenants for your space.
It’s possible to buy a home while your home is on the market. Start by speaking with a listing agent. They can help you understand your current housing market and create a plan to sell your home quickly. You may also want to get in contact with a real estate agent to help you find a new home that fits your needs.
Be sure you’re financially prepared to apply for and manage a second mortgage before you start looking at homes. A bridge loan or home equity loan can help you manage your mortgage before you sell (Rocket Mortgage® does not offer these types of loans). You can consider renting your home if your home doesn’t sell, and a property management company can be a vital asset if you don’t have experience as a landlord.
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