Tips for Buying and Selling a Home at the Same Time

Thinking about selling your current home and finding a new one? Maybe you need more bedrooms, you want a bigger yard or you're in search of a new neighborhood. Whatever your reasons for making a change, beginning a new homeownership journey is an exciting experience. Let's explore what it means to sell and buy a home simultaneously, along with tips for doing it smoothly.

Buying or Selling: Which Comes First?

Should you buy or sell first? The best-case scenario is that you sell your home and immediately close on your new one. But in reality, one may come before the other.

Buying Before Selling

There are advantages and disadvantages to buying a new home before selling your current one.

Pros:

• Secure Your Ideal Home: You can immediately purchase your perfect home when it appears on the market.
• Avoid Double Moving Costs: You can move directly into your new home, eliminating the need for multiple moves, renting storage spaces or finding temporary housing.
• Flexibility in Moving: Typically, you'll have up to 60 days post-closing for moving, giving you ample time for packing, furnishing or even some renovations.

Cons:

• Potential for Dual Mortgages: If your current home doesn’t sell quickly, you might end up juggling two mortgages, along with other costs like utilities, taxes, homeowners association (HOA) fees and insurance.
• Financing Challenges: Without the immediate cash from your existing home sale, you'll need to have alternative sources for your down payment on the new property. This could involve bridge loans, larger personal loans or dipping into savings. Plus, since you'll likely still be carrying your current mortgage until you close on your new home, your debt-to-income ratio (DTI) would temporarily increase as a result of you being responsible for two mortgage payments at the same time. This could affect your eligibility for certain loans.
• Pressure to Sell Quickly: Holding two properties can create urgency to sell your existing home, potentially leading to compromises on price or terms.

Selling Before Buying

Many home sellers opt to sell their current house before buying a new one. But is it the right choice for you? Here’s a breakdown of the pros and cons to help you make an informed decision:

Pros:

• Access Equity: Selling first allows you to use the equity and profits from your current home for your next purchase.
• Stronger Financial Position: You may be able to make a more substantial down payment and a stronger offer on a new home.
• No Double Mortgages: Avoid the financial strain of covering two mortgages at once.
• Easier Negotiations: You’ll have more flexibility when selling your home without the pressure to accept the first offer.

Cons:

• Temporary Housing: You’ll need a place to live until you find a new home, which may mean staying with family or at an extended-stay hotel.
• Additional Costs: Expect double moving costs and temporary housing and storage expenses.
• Fluctuating Interest Rates: Waiting to buy could mean facing higher mortgage rates later. And keep in mind that a higher rate could also impact what you qualify for, since as the rate increases, so does the mortgage payment. A good solution to consider would be to enroll in a program like Pennymac’s Lock & Shop, which allows you to lock in a favorable rate prior to finding your new home.*

Get Ready for Both at the Same Time

Buying a new home while selling a current one requires a well-coordinated approach. Here are some planning tips to streamline this transition.

How to Prepare Before Buying a New Home

Preparing to buy involves more than just browsing real estate listings. To ensure you're thoroughly ready, consider the following steps:

• Get a New Mortgage Pre-Approval: Gain clarity on your budget and strengthen your position as a buyer by getting pre-approved. For example, a Pre-Approval from Pennymac can give you a picture of how much of a mortgage you might qualify for. Plus, you may be able to qualify for Pennymac’s Lock & Shop program to protect yourself from future rate increases while you shop for your home.*
• Research Neighborhoods and Market Trends: Identify areas that match your lifestyle and preferences. Consider factors like schools, commute times and community amenities.
• List Your Must-Haves and Deal-Breakers: Determine essential features like the number of bedrooms or bathrooms. Prioritize other aspects, such as home office space, and think about long-term needs. For example, do you want room for a growing family or a yard that can accommodate a pool? Establish potential deal-breakers, such as a busy street or no garage.
• Plan for Additional Expenses: Budget for closing costs, moving expenses and any immediate home improvements. You’ll also need to factor in ongoing costs like property taxes, homeowners insurance, applicable HOA fees and maintenance.

How to Prepare Before Selling Your Current Home

Do some prep work to ensure you’re ready for a smooth home-selling experience and your home is well-positioned for a successful sale.

• Declutter: Donate, sell or store excess belongings. Remember that "less is more" when you showcase your space.
• Stage for Success: Create inviting spaces that highlight your home's best features. Try to create a blank canvas for a buyer to easily envision living there, along with their own personal belongings, loved ones and lifestyle. For example, remove your pictures and keepsakes, as they can be distracting. Consider professional staging for maximum impact.
• Repair and Refresh: Address any cosmetic issues like chipped paint, leaky faucets or worn-out carpets. Consider minor upgrades like updated hardware for enhanced appeal.
• Get Informed: Research recent sales in your area and comparable properties. Check out Pennymac's Home Value Estimator to see recent local home sales and compare the pricing of homes that align with your square footage and number of beds/baths. Ask a real estate agent for their educated opinion on how much you may be able to sell your home for.
• Be Document-Ready: Assemble relevant paperwork like purchase agreements, warranties, utility bills and inspection reports. Having them readily available for buyers builds trust and streamlines the process.

Financial Considerations

Managing the sale of your current home with the purchase of a new one presents exciting possibilities but also financial considerations, such as:

• Funds for Both Homes: You’ll need enough funds to cover a down payment and mortgage payments on your new home, while keeping up with the payments of your current one.
• Increased Debt: Carrying two mortgages concurrently may strain your finances.
• Contingency Clauses: Factor in potential additional costs associated with contingencies in your offers, like appraisal gaps or post-inspection repair requests. (Note that an inspection may uncover mandatory repairs that must be completed in order for financing to be approved and the sale to go through.)
• Unexpected Expenses: Budget for possible repairs, inspections or legal fees that might arise during either transaction.

The following financing options can help you manage these issues.

Home Equity Loans

A home equity loan, also called a closed-end second mortgage, can be a viable and convenient source of funds if you have substantial equity in your current home. If you plan to use the funds to purchase another property, the best use in this case is for an investment property. Here are some of its benefits:

• Keep your primary mortgage rate: Given that a home equity loan is a second mortgage, the loan’s interest rate only applies to the new amount you are borrowing against your equity. (This differs from a cash-out refinance, a new primary mortgage that replaces your current mortgage, along with the rate you initially had.) This option is advantageous if you want to access cash from your home equity without losing a low interest rate you have on the remainder of your principal balance.
• Receive a lump sum payment: You receive your cash as a lump sum at the start of the loan.
• Borrow up to 80% of your home’s value: Depending on various factors, the loan amount can be up to 80% of your home's current value.
• Rely on a low fixed rate: Unlike other second mortgage options that are subject to a fluctuating market, your interest rate will be fixed and you can rely on a set repayment schedule.

Cash-Out Refinance

A cash-out refinance enables you to obtain a new primary mortgage with a higher principal balance than your existing loan, and receive the difference as a lump sum payment at closing. Some of its potential benefits:

• Accomplish lowering your primary mortgage rate and receiving cash simultaneously (during favorable rate conditions).
• Have more to put down for your new home, which can reduce or eliminate your mortgage insurance obligation for the new property’s financing.
• Receive additional funds to use for home furnishings or updates to your new home.
• Use the funds to pay off outstanding debts prior to buying a new home, which can put you in a more favorable position to qualify for new home financing.

HELOC

A home equity line of credit (HELOC) is another type of second mortgage that allows you to borrow against your home equity, operating much like a credit card with an adjustable interest rate (subject to market fluctuations).

With a HELOC, there are unique pros and cons to consider:

• Leverage the equity in your current home to provide cash for the down payment or initial mortgage payments on your new home.
• Borrow what you need incrementally and up to the approved maximum amount, like how you do with a credit card.
• Be at higher risk of overspending (and possibly even foreclosure). Unlike a credit card, your home serves as collateral for a HELOC. And given the rates on this type of financing are adjustable and subject to the fluctuations of the market, it can be difficult to know ahead of time how much your payments will be every month.
• Make interest-only payments during the initial draw period. Keep in mind that while this can make the loan feel more affordable initially, you could experience a shock once the principal payments are owed, since the monthly amount can increase significantly. If you are using the funds to buy a new home and plan on selling immediately, however, you can avoid these risks by paying it off before the draw period ends.

Bridge Loan

A bridge loan serves as a temporary financial solution during the transition of purchasing a new home while still owning your old one. While most lenders do not offer these higher-risk loans, they can enable these unique features:

• Provides immediate cash to pay your new mortgage while you still own your older home
• Gives you more flexibility in your purchasing options, particularly in competitive housing markets where sellers prefer buyers who are not contingent on a home sale
• Removes the pressure of having to synchronize the sale of your old home with the purchase of your new one, offering greater flexibility and peace of mind

Keep in mind that bridge loans can come with some meaningful drawbacks:

• Higher rates: Due to the risk associated with these loans, you can count on having a higher interest rate than you would have with a traditional loan.
• Stringent requirements: Borrowers will need excellent credit and a low debt-to-income ratio.
• Large equity ownership needed: Since a bridge loan is based on the combined value of two homes (the current home you are selling plus the new home you are buying), most lenders require that the loan amount equate 80% of the combined value of the two properties. This means you must own significant equity in your current home or have plenty of cash savings to qualify.
• Two mortgage payments: Until your current home sells, you will still have to pay your initial primary mortgage in addition to the bridge loan. Hence, you will have two mortgage payments until your home sells.

Once your home is sold, you pay off all liens on the property, including a second mortgage. Remember that, as with any mortgage, all of the loan options listed above are secured against your home, meaning you risk losing it if you can't repay. Also, some lenders might have specific rules about using a second mortgage for a down payment on another property.

Budgeting for Dual Mortgages

Budgeting for dual mortgages while buying a new home and selling your current one is important to consider. Here are some tips for managing this scenario:

Be Financially Prepared

Ensure you have a clear understanding of your financial situation. This includes knowing how much you can afford, understanding the implications of carrying two mortgages, if necessary, and being aware of all costs involved in both transactions. It should also be considered that in this type of scenario, you run the risk of either not selling your home at all, or at least not within your anticipated time frame. If this occurs, are you prepared to carry two mortgages indefinitely or do you have a back-up plan in place to produce income from the property if you are financially strapped (e.g., turn your home into a rental property)?

Calculate the Costs

Determine the total monthly cost for both mortgages. Don't forget to include property taxes, homeowners insurance and any HOA fees for both properties.

Create a Detailed Budget

With the costs in mind, draft a budget that accounts for your regular expenses plus the additional mortgage and associated costs. Be sure to include a buffer for unexpected home maintenance or repair expenses.

Emergency Fund

If you don't already have an emergency fund, now is the time to build one. This fund should cover several months of living expenses, including both mortgage payments, in case of unforeseen financial difficulties.

How to Make the Timeline Work for You

Selling your current home while buying a new one involves coordinating two complex transactions. Understanding the typical timelines involved in each process can empower you to plan effectively.

Research the Market to Set Realistic Expectations

Understanding average selling and buying times in your area can help you set realistic expectations throughout the process. Many real estate websites track and publish market data, including average days on the market for different property types and locations. Use these resources to get a sense of local market trends.

Talk to a Real Estate Agent

An experienced real estate agent familiar with your local market can also offer invaluable insights into current trends and anticipated timelines based on your specific property type, condition and price point.

Consult with a Lender

Speak with a lender for personalized guidance and strategies tailored to your specific financial situation and the real estate market conditions.

Keep in Mind Seasonal Nuances

Market activity often fluctuates throughout the year. Again, this is where a real estate agent can be a great resource. They can suggest the most strategic time to list or make offers based on your goals.

Consider External Factors

External factors such as the following can potentially impact the home buying and selling timeline:

• Inventory levels
• Economic climate, such as interest rate changes and overall consumer confidence
• Location
• Buyer financing issues
• Contingency clauses
• Weather and holidays
• Legal or title issues

Be Flexible

Market conditions can change quickly and external factors beyond your control can occur throughout the process, so adaptability is key.

Have a Contingency Plan

Be prepared for the unexpected. This might involve having temporary housing lined up or being ready to adjust your budget if your current home sells for less than expected or if the purchase of your new home involves unexpected costs.

Make a Smooth Transition to Your New Home

While buying and selling a home simultaneously involves lots of moving parts, the outcome can be incredibly rewarding. With the right planning, financial strategies and support, you’ll be well-equipped to handle the task as you take steps toward your next chapter. Ready to sell your home and begin looking for your new one? Chat with a Pennymac Loan Expert, or use one of our mortgage calculators and start your home-buying journey today.

*Lock & Shop Program allows consumers with a purchase mortgage Pre-Approval from Pennymac to lock a rate prior to locating a property. The program requires a non-refundable fee of $595 due at the time of the rate lock. Consumers with a purchase mortgage Pre-Approval from Pennymac must meet appropriate underwriting conditions to obtain a mortgage loan. Consumers may choose between a 60-day, 75-day or 90-day lock period. Consumers must initiate a mortgage loan application for a specific property and be under purchase contract for the property at least 30 days prior to lock expiration in order to extend the locked rate. All rate lock extensions are subject to Pennymac’s standard rate lock extension fees. After the rate lock and subject to favorable market conditions, consumers may be eligible for a one-time reduction in rate once the loan application for a specific property has been initiated (0.50 % maximum reduction in interest rate allowed). Eligible loan products are Conventional Fixed, Conventional ARM, FHA Fixed and VA Fixed. Program excludes Jumbo, refinance, third-party and in-process loans. Program subject to termination in Pennymac’s sole discretion and without notice.

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