How I Plan to Buy One House and Sell Another

Recently, a reader had this question for me:

FMF, does buying your new house w/cash include the money from selling your current home?

I always wondered how that act is juggled. If you wait to move into your new home before selling your old home, do you carry a mortgage for a few months? If so, will paying it off quickly violate some terms with the bank? Or is the buying+selling just commonly brought as close together as possible?

This is a good question, but one that's not easily answered because of so many moving parts -- whether we buy or sell first, how long before we buy sell, what time of year we buy/sell, and so on. So there are many different ways this could eventually pan out (including us not moving at all), but I'll share my thoughts on two different scenarios -- one if we buy first and one if we sell first.

If we buy first, that would mean one of two things:

• We got a REALLY great deal on the home we're buying
• We will be buying next spring or early summer -- enough time to sell our home before the end of the summer

As you may recall, we made an offer on one home this spring but couldn't come to agreement with the seller. If we had reached a deal with them, we would have had plenty of time to sell our home this summer and have the buying and selling all wrapped up by October. How can I be so confident that we could sell our home in a few months? Because we plan to price it aggressively -- to move. Financially, we don't need to get a maximum sales price from it to make the finances work. We'd rather price it at or below the market and move quickly. Besides, holding two homes is not exactly something we want to do.

In this case, the numbers would look something like this:

• We'd buy a new home for $370,000
• We'd put $100,000 down
• We'd get a mortgage for the rest
• Once we sold our current home, we'd net $160,000 at the worst
• We'd put the $160,000 against the mortgage

At this point, we'd owe $110,000 on the new home. We have about that much in savings (above the $100k above), but that amount has the following in it:

• Savings for a new vehicle we'll need in a couple of years
• Our emergency fund
• Any extra funds we need to fix up the new house (paint, carpet, furniture, etc.)

Given these, we'd probably have $20k or so available to put down on the house, so we may do that or may not. Either way, we'd start making extra payments on the mortgage and hope to have it paid off in a couple years or so.

On the "sell our house first" side, we wouldn't sell unless we had a new place to move to (we're not moving to an apartment or rental home). We could get an offer anytime (we have friends interested in buying our house if they sell their home), and if we do we'd first go back to a home we like and see if we can make a deal to buy it. If we can, we'd set up the buying and selling to happen near the same time. If we can't, we'll either need to figure out something with the new buyer or simply pass on their offer until we can find something we do like. If we were able to work all this out, the finances would be similar to those detailed above.

Buying a house and also having a home to sell is certainly a juggling act. But we've got our finances in a position that allows us some flexibility. In addition, we're using my formula for buying a home, so the new home won't be a financial burden. These two factors combine to make what's often a very difficult situation a relatively easy one to manage.

Comments

[WiseMoneyMatters]

I would always try to sell first. Just make sure you have a 60-90 day escrow. This gives you time to move out and allows you to purchase a new home. With the purchase of the new home, you just tell the owners of your closing date and agree on a purchase in cash on that date. If it's a foreclosure property, nobody is living there anyways, so you may be able to make an agreement with the bank to start moving your boxes in a few weeks before closing.

If things overlap too much, get a storage unit for 1 month and live with family or in a hotel room for a few weeks to 1 month. It will cost you very little and there won't be any juggling 2 mortgages. Heck, if you can pay cash for a house, the closing costs on a temporary mortgage alone would be more than a few weeks in a hotel room.

[FMF]

Wise --

You're assuming I could find a new place relatively easily. After looking for 16 months, we've only found one place that's even close, so I'm not confident we could find a new place quickly. And we do NOT want to live in an apartment/hotel for any amount of time.