If you’re among the approximately 66 percent of repeat buyers in the housing market, you may wonder how to make the transition from one house to the next. Most people need the proceeds of the sale from one house to purchase another property. While ideal, a simultaneous closing can be challenging.
When you’re having a home built for you, timing your dual closings can be even more difficult since the precise day your new home will be ready for occupancy depends on multiple factors.
While it’s always an option to sell your home and move into temporary housing while your new is under construction, here are three ways to avoid the headache of moving twice:
Try a Bridge Loan.
A bridge loan fills the financing gap between your current home and your new home, says Kelli Yarbrough, a senior vice president for loan retention with Round Point Mortgage Servicing.
“Bridge loans are typically nontraditional short-term loans for six months to three years,” says Yarbrough. “The loan is secured by the equity in the house you intend to sell.”
Typically, bridge loans require interest-only payments because they are meant to be temporary. Some bridge loans are a line-of-credit that you can access on an as-needed basis, while others are loans for a fixed amount. The bridge loan can be used to make a deposit, a down payment or even the first few payments of the mortgage on your new place while you wait for your home to sell. When it does, you pay off the bridge loan along with the first mortgage payment on your home.
Keep in mind, “You’ll need to qualify for the payments on your old home loan, your bridge loan and your new mortgage,” says Yarbrough. “Every lender sets their own guidelines for these loans, so there’s no minimum credit score, but you need to be a well-qualified borrower.”
The danger of a bridge loan is that if your house doesn’t sell, you are on the hook to repay the loan when the term ends. You’ll also likely pay a higher interest rate on a bridge loan, says Yarbrough, and will need to pay closing costs.
“Getting a preapproval for a bridge loan and for the loan on your new house is a good idea when you’re having a home built,” says Yarbrough. “Depending on the timing of your move and your ability to sell your current house, you may not need it. But having it in place gives you flexibility.”
Sell Your Current Home to an iBuyer.
Several companies, including Opendoor, Offerpad, and Redfin in some markets, offer buyers a quick online sale. Homeowners enter details about their home to receive a tentative offer within a day or two, followed by an inspection and final all-cash offer. Opendoor recently announced a Builder Program with 19 homebuilders in Phoenix, Dallas-Fort Worth, Las Vegas, Atlanta, Orlando, Raleigh-Durham, Charlotte, San Antonio and Nashville, after completing a pilot program with Lennar in Las Vegas. Opendoor anticipates expanding to 10 more markets in 2019.
“Our program helps people eliminate the obstacle of having a home to sell,” says Derek Schairer, director of home builder partnerships for Opendoor. “With our home builder program, we allow flexible closings that can take place in 10 days or nine months, whatever is needed to sync with the builder’s schedule.”
In addition to flexible closing dates, Opendoor offers a “late check-out” option, says Schairer, which allows people two days to move out of their old house and into their new home.
“We worked with a multigenerational family that was buying one of Lennar’s NextGen houses in Las Vegas,” says Schairer. “We were able to sync up all three closings on the three different homes that needed to be sold with the closing on the NextGen house.”
Homeowners pay an average of six to seven percent of the sales price to sell their house to Opendoor. In some cases, the homeowners also need to pay a fee to have their home repaired or they can repair it themselves, says Schairer.
While the main benefit is the flexible closing date, homeowners also don’t have to keep their house ready for potential buyers or time their sale to avoid moving twice.
3. Have an Internet Buyer Purchase Your New Home for You.
Knock.com flips the Opendoor model: they’ll buy your new home for you, let you move in, sell your current home and then transfer the new home to your name.
“Our goal is to make trading in your house as easy as trading in your car,” says Sean Black, co-founder and CEO of Knock.
Homeowners submit information about their current home on the Knock site and instantly find out what the property is worth based on market data, tax records, comparable homes and information provided by the customer. Customers have a phone consultation with a Knock agent and a price inspection to generate a recommended list price.
“We also have a mortgage marketplace and the ability to pull documents online to get homeowners preapproved for a loan so they know their budget for their new home,” says Black.
Knock helps homeowners find their new home and makes an all-cash offer. After the customers move into their new home, Knock handles any needed repairs on their previous home and lists it for sale.
Customers pay a six percent commission when Knock sells their current home, half of which is passed on to the agent representing the buyer of their home. In addition, customers reimburse Knock for repair costs on their old home and any financing fees or utilities paid on the new home.
Knock, which is currently in Atlanta, Charlotte and Raleigh-Durham, works with builders in those markets to coordinate the timing of sales and closings. The company plans to expand to 10 markets by the end of 2019.
“If someone wants to move into their new home in November and wait to put their home on the market in January when the market is better, we can arrange that,” says Black.
For move-up or downsizing buyers, these three methods of making the transition from one home to a newly built home can ease your mind and smooth your move.