Can You Sell a House and Buy Another at the Same Time? We Explore Your Options

When you are in the process of moving, the process of buying your new home and selling your old one usually involves choosing which one comes first—to buy or to sell. Selling your old home first is often a more sensible option, as this ensures you have the needed down payment to cover your new property. But if you sell and don’t have a new home waiting for you, you might end up scrambling for a place to stay and someplace to store your belongings. For a family with kids or with pets, that can be especially inconvenient.

Buying before selling is an alternative, but when market demand is low and you can’t sell your old home quickly, you might end up with a lot more obligations than you can handle. You now have two homes to maintain and two mortgages to pay. If you’re on a tight budget, this could put you in hot water. 

What if you decide to buy and sell at the same time? This strategy can work well if you have reserves or some investments to sell to come up with the needed amounts to buy your new home if that occurs before your sell your old one. But if you’re someone who doesn’t have a lot of extra cash to spare, you need to develop some ideas to push through. 

Selling and buying simultaneously will require some ingenuity on your part as this strategy calls for thoughtful planning to time your sales and purchases. While you may not control the entire housing market, there are steps you can take to make sure you pull off both transactions. 

We’ll fill you in on some of the options to make sure you succeed in selling your current property and seal the deal to your new home at the same time. We’ll also cover some contingencies just in case you encounter a gap between selling and buying so that you won’t end up homeless at the very least.  

Options for Buying and Selling at the Same Time 

As mentioned, there are several options you can explore when you plan to buy and sell at the same time. These alternatives can help you manage not only the buying-while-selling process, but it can also keep your stress levels at a minimum.

#1 Find a Cash Buyer for Your Home 

Selling your house requires exact timing and demand from the market. Some markets, like the Florida housing market, are quite in demand right now, but others may not be, so plan out your timeline accordingly and take that extra time you may need to sell into account. You can sell your house fast in areas with high demand if you partner with an instant home buyer or a real estate investment company that offers to pay in cash rather than waiting for buyers to have their mortgages approved. 

This way, selling your house gives you the needed resources to fund your next move when you’ve already closed the deal. If ever you’re still looking, accessible funds ensure you can find temporary arrangements until you’re ready to find a new home.

#2 Talk to a Lender 

In case market demands are low and you can’t sell your house quickly, you would need to consider if owning two homes are feasible for your budget. While cash reserves can get you as far as a few months of the double mortgage, you may need to sell a few of your assets to maintain both properties. 

If you find your savings or income insufficient, you can consider talking to a lender to generate some funding. They can provide you with several loan offers that use your home’s equity as a down payment for your purchase. 

One of them is a bridging loan, short-term financing that can work great when you’ve already chosen your new property and acquiring it is in the works. You can even add a contingency clause that your purchase will only go through if your bridging loan gets approved so you can walk away without any additional obligations.

Another option is to take out a home equity line of credit (HELOC) that gives you greater flexibility to repay only the amount you use for buying your home. A HELOC uses your home’s equity as a basis to issue amounts you can use based on agreed terms that will help you get by until you sell your former home.

However, while these loans can give you access to immediate funds, they often come with considerable interests and lengths. It would be best to give it some careful thought before you take out any of these loans

#3 Make Attractive Offers 

Part of a successful strategy is to make attractive offers for the home that you want and the one you’re selling. Contingency offers help secure your intentions without you having to pay for unnecessary obligations. You can include a condition for the upcoming purchase if your current house sells. This can work to your advantage when you’re in a buyer’s market. It can also work if there is less demand for the home you desire. 

While having a contingency clause may at times weaken your offer, you counter this by offering a higher bid so the seller can wait until you’ve sold your house. You can even add in non-refundable earnest money to win the deal on your next dream home. 

#4 Make Gaps Work to Your Advantage

Sometimes circumstances do not work as planned, but don’t get disheartened. These are just momentary setbacks that may even give you time to improve your current home and increase its current market value. 

If you find yourself in your new home and stressing how to manage the former, you can consider renting it out to cover maintenance and mortgage costs. You can use Airbnb and other similar platforms to gain additional income from your property while the market is on a low. Once the conditions are right, you can sell your house for the price you want. 

If you take out a home equity loan, you can use it to renovate your old home and increase your home value. Some key features to spend on that have high ROIs include enhancing your curb appeal, taking care of house repairs early on, and updating your kitchen to give it a modern look. Spending considerable time and effort on your former property will surely enhance its chances of getting sold in the coming days. 

Conclusion 

Selling and buying are some of the less-traveled paths for homeowners because of their inherent risks. Taking on two mortgages when you do not have sufficient funds can be too much to handle, and taking out loans can add stress. 

You can make this strategy work to your advantage if you find the right tools to help you pull off both transactions simultaneously. Partnering with an instant house buyer can give you cash for your next purchase, while loans can provide you enough leeway to facilitate your move. Adding contingency offers allows you to address gaps as they happen without having to take on additional burdens or leaving you homeless at the very least.

Keep reading

Do You Pay Taxes When Selling Your House?
Great Ways to Increase the Value of Your Home: the 3 Areas with the Biggest ROI
Considering Buying a Home with a Crawl Space? Here’s What You Need to Know
A Brief Guide to Buying Real Estate: The Main Players in Your Next Home Search

Source: fancypantshomes.com

Can you use a 203k loan for an investment property?

203k loans for investors: A special use case

The FHA 203k rehab loan can be an affordable way to buy or refinance a home and refurbish it with a single loan. 

This might make the 203k loan attractive to investors and fix-and-flippers. But there’s a catch.

These mortgages are limited to ‘primary residences,’ meaning the borrower has to live in the home full time. So they’ll only work for specific types of investment properties. 

But there are ways to legally and ethically use a 203k loan for rentals and investments. Here’s how.

Verify your 203k loan eligibility (Feb 23rd, 2021)


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FHA 203k loan for investment properties

There’s only one legitimate way to use a 203k loan for an investment property. You can buy and renovate — or construct or convert — a multifamily (2-4 unit) building and live in one of the units.

FHA allows borrowers to purchase 2-, 3-, and 4-unit properties and renovate them using the 203k loan.

To fulfill FHA’s residency condition, you’ll need to occupy one of the units yourself as your primary residence for at least 12 months.

You can rent out the other unit(s), and even use the rental income to cover your monthly mortgage payments.

Benefits of the FHA 203k loan for investors

While this might not be your first idea of an investment property, it can be a foot in the door for first-time investors who want to test out owning and renting properties.

It’s also worth noting that since you’d be buying the property as a primary residence, you get access to lower interest rates.

This means you’d have lower monthly payments and pay less interest overall compared to someone with a ‘true’ investment property mortgage.

Drawbacks

The main downside to this strategy is that you yourself need to occupy one of the units for at least one year.

After 12 months, you could rent out the unit that you live in and move on to purchase other real estate.

But FHA is not for serial investors. Once you use one FHA loan, you likely can’t get another one. You’ll have to secure other financing if you move out and buy again.

Also, keep in mind that you will be living side by side with your future tenants for those 12 months — some may consider this a downside while others won’t mind.

Another downside: FHA loans come with pricey mortgage insurance premiums (MIP) which borrowers are normally stuck with until they sell or refinance into a different loan program.

So there’s a lot to consider before going the 203k investment property route.

But for the right borrower, this could be a great strategy to finance and renovate their own home and a few rental units at the same time.

Verify your 203k loan eligibility (Feb 23rd, 2021)

Can I use a 203k loan if I already own the home?

If you already bought your home, you can use a 203k rehab loan to refinance your current mortgage. This opens up another back door for investors.

You could potentially use the 203k loan to refinance your current home, make renovations, then move after one year and rent the house out as an investment property.

FHA allows you to rent out a home you still own with an FHA loan, as long as:

  • You fulfilled the one-year occupancy requirement
  • You moved for a legitimate reason, like a work relocation or upsizing to a bigger house for a growing family

This would only work for refinancing a home you currently live in and plan to keep occupying for at least a year after the loan closes.

If you already moved and kept your previous home as a rental property, you would not be able to use the 203k rehab loan since the home is no longer your primary residence.

How does the lender know if it’s my primary residence?

Some people make good livings by buying fixer-uppers and then selling them after rehab — aka “flipping” them.

A few might be tempted to take advantage of the 203k program by lying about their intention to live in the home. After all, how can the FHA prove in court what your intentions were when you made the application?

The main argument against this strategy is that lying on a mortgage application can be a felony that could see you in federal court.

Even an email to a contractor mentioning that you don’t intend to live there or other indication of your plans could show up in the court case.

And, repeat FHA buying would not be a viable long-term strategy.

FHA only allows borrowers to have one active FHA loan at a time, except in rare circumstances (for instance, if your work required you to relocate and you needed to buy another home near your new job).

In other words, borrowers cannot move once a year and continue financing new homes with FHA loans.

If you see yourself as an entrepreneur with a rosy future in real estate investing, set yourself up for success by choosing a legitimate financing option that keeps your options open in the long run.

Check your investment property loan options (Feb 23rd, 2021)

About the FHA 203k rehab loan

The 203k rehabilitation loan is backed by the Federal Housing Administration (FHA), an arm of the U.S. Department of Housing and Urban Development.

This mortgage program lets you buy a rundown home — a fixer-upper — and then renovate it using a single loan that covers the purchase price and cost of repairs.

If that involves demolishing the existing structure down to the foundations and rebuilding, that’s fine under 203k loan rules, too.

203k renovation loans are only for necessary repairs to improve the structure or livability of the home. So the funds can’t be used to add luxuries like tennis courts or swimming pools.

And there’s one more important rule: You cannot do the construction or remodeling work yourself. The 203k loan requires you to hire a reputable, licensed contractor, unless you are one yourself and you work full-time as a contractor.

Limited vs. Standard 203k mortgage

There are two flavors of the 203k program: the “Limited 203k mortgage” and the “Standard 203k.”

The Limited 203k used to be called the “Streamline 203k.” As its new name implies, this version is more restrictive about the amount you can spend and the types of work you can do. But it’s also less complicated, hence its former “streamline” moniker.

The maximum repair budget for a Limited 203k loan is around $31,000 ($35,000 officially, but there are mandatory reserve accounts that eat into that sum). And you can’t make any structural renovations to the home.

On the plus side, these loans require much less paperwork and hassle.

The Limited 203k loan is typically best for current homeowners who want to make cosmetic repairs or renovations. It works a bit like a cash-out refinance, except you must spend the money on the home improvements you’ve listed.

A “Standard 203k loan,” by contrast, allows much higher budgets and would be better for home buyers purchasing serious fixer-uppers that need structural repairs.

FHA loan requirements

The basic requirements for 203k loans are similar to those for other FHA mortgages:

  • A 3.5% down payment — Based on your purchase price and rehab budget combined, subject to an independent appraisal
  • Minimum 580 credit score — It may be possible to dip below 580 if you have a 10% or higher down payment
  • Debt-to-income ratio of 43% or less — No more than 43% of your gross monthly income can normally be eaten up by housing costs, existing debt payments, and other inescapable monthly obligations such as child support

Although the FHA sets these minimum requirements, you’ll be borrowing from a private lender. And they’re free to impose their own standards.

For example, some mortgage lenders require a credit score of 620 or 640 for an FHA loan. If one lender has set the bar too high for you, shop around for other, more lenient ones.

Verify your FHA 203k loan eligibility (Feb 23rd, 2021)

What repairs can you do with a 203k loan?

The FHA is putting up taxpayers’ money to guarantee part of your mortgage. So it’s not in the business of writing loans for luxury upgrades.

There are strict rules about the types of home renovations you can do and the amount of money you can borrow.

In fact, the total amount you can borrow for your home purchase and renovation costs is governed by current FHA loan limits, which vary depending on local home prices.

You can find the loan limit where you wish to buy using this lookup tool.

Maximum rehabilitation loan budgets

We already mentioned that a Limited 203k loan gives you a cap of around $31,000 on your rehab budget.

A Standard 203k lets you have as big a rehab budget as you want, capped only by your local loan limit minus the home’s purchase price.

Your total loan amount can be up to 110% of the property’s future value when complete.

But an appraiser will pore over your plans to make sure the final value of the home — after your projects are completed — will match the amount FHA is lending you.

What you can spend your rehab budget on

The Limited 203k is mostly intended for refreshing a home that’s a bit tired. So you can do things like:

  • Replacing flooring and carpeting
  • Installing or replacing an HVAC system
  • Remodeling a kitchen or bathroom
  • Fixing anything that’s unsafe
  • Making the home more energy-efficient

But you can’t use the money to do structural work, such as moving loadbearing walls or adding rooms.

The Standard 203k is very different.

You can do all the above and almost everything else, including serious construction work. Heck, you can even move the house to a different site if you get the FHA to approve your plans.

The 203k loan process

Limited 203k loans are pretty straightforward. Indeed, they’re easier than most to qualify for and set up.

But a Standard 203k isn’t like that. It may be your best path to your dream home. But there will be some extra hoops to jump through compared to a traditional mortgage.

Here’s the basic process to apply for and close an FHA 203k loan.

  1. Find your best lender — You can save thousands just by comparison shopping among multiple lenders. They aren’t all the same! Make sure the ones you consider offer FHA 203k loans and are experienced in delivering them. You’ll want a lender familiar with the specifics of 203k loans to make sure the process goes smoothly
  2. Get pre-approved — Pre-approval shows you your exact budget as well as your future interest rate. And you’ll get a chance to resolve any issues that arise in your application
  3. Find the home you want — This is the fun bit. But download the Maximum Mortgage Worksheet PDF from HUD’s website because that will help you assess whether your plans are affordable
  4. Find a 203k consultant — A 203k loan consultant will visit the home site, inspect the building, and then prepare a document outlining the project’s scope and specifications, along with a detailed cost breakdown for each of the repair tasks. He or she also prepares lender packages and contractor bid packages, along with draw request forms for stage payments
  5. Find a licensed contractor — Some lenders maintain lists of approved contractors. And your consultant may help you find a reputable one. Make sure candidates have proven records for projects similar to yours and are familiar with FHA 203k jobs. Many contractors add serious delays to 203k approval because they can’t seem to complete the paperwork correctly
  6. Have the home and project appraised — The lender will set this up for you
  7. Begin work — Once the appraisal is approved, the lender should let you close. And your contractor can then begin work, drawing on funds in an escrow account

Limited 203k loans require the borrower to live in the home while repairs are completed. So if it’s a new home purchase, you’ll have to move in within 60 days, which is the norm for FHA loans.

Standard 203k loans, on the other hand, might include structural repairs that render the home unlivable while construction is going on. In this case, the home buyer is not required to move in right away.

Rehab loan alternatives for investment properties

FHA 203k loans aren’t the only way to buy and renovate a home with one loan. Fannie Mae’s HomeStyle Renovation and Freddie Mac’s CHOICERenovation products can do much the same thing.

Since the HomeStyle and CHOICERenovation loans are conventional mortgage loans, they won’t charge for private mortgage insurance (PMI) if you put at least 20% down. This can save home buyers a lot of money on their monthly mortgage payments.

However, like the 203k loan, these programs are only available for primary residences.

If you’re buying a ‘true’ investment property — meaning you won’t live in one of the units yourself — these loans aren’t an option.

But investors have other renovation loans to choose from.

Traditionally, you would buy a home with a mortgage and then borrow separately — perhaps with a home equity line of credit or home equity loan — to make improvements. Then you could potentially refinance both loans into one later on.

Another option is using a cash-out refinance on your investment property or primary residence and putting the cashed-out funds toward repairs or upgrades.

Of course, all these types of loans require you to have enough equity built up to cover the cost of repairs.

And if you choose to draw from the equity in an existing investment property, you’ll pay higher interest rates.

But the upside is that there are no rules about how the funds can be spent. So if luxury upgrades are on your agenda, this could be the way to go.

Explore all your options

FHA 203k loans are only available to a select group of investors: Those who will buy a multi-unit property and live in one unit themselves.

For real estate investors looking to fix-and-flip or build a large portfolio of investment properties, an FHA loan isn’t the right answer. But there are plenty of other financing options out there.

Be sure to explore all your loan options before buying or renovating a home. Choosing the right program and lender can help you achieve your goals and save money on your project.

Verify your new rate (Feb 23rd, 2021)

Compare top lenders

Source: themortgagereports.com

Cash-Out Refinance vs Home Equity Line of Credit

Cash-out refinances and home equity lines of credit are two borrowing options that allow homeowners to tap into the equity they have built in their home.

A HELOC is a line of credit secured by the borrower’s home. The line of credit can be accessed on an as-needed basis, up to the borrowing limit. The borrower is only charged interest and responsible for repaying the amount they actually borrowed.

For a cash-out refinance, the borrower takes out an entirely new mortgage while borrowing a portion of their existing home equity. The total borrowed amount of the cash out refinance will be greater than the borrower’s original mortgage, and the borrower will receive the difference in a lump sum payment from the lender.

Mortgage RefinancingMortgage Refinancing

Borrowers should keep in mind that a cash-out refinance replaces their current mortgage and even though they receive additional cash they only have to make one monthly payment. Unlike a home equity line of credit, a cash-out refinance may have a fixed interest rate, meaning that the interest rate remains unchanged for the life of the loan so the monthly payments remain the same. Additionally, interest rates are typically lower than with a HELOC.

The approval process for a cash-out refinance is similar to the initial approval process when buying a home. It can be somewhat cumbersome, but the payoff is a lower interest rate, a fixed payment, and access to additional cash.

Which is better: Cash-Out Refinance vs Home Equity Line of Credit?

Like most things in the world of finance, the answer to which option is better will vary by person based on their individual financial circumstances and unique needs. In some situations, a HELOC may make more sense than a cash-out refinance and vice versa.

HELOCs can be useful for shorter-term needs or situations where a borrower may want access to funds over a certain period of time, for example when completing a home renovation. Because HELOCs generally have a variable interest.

Cash-out refinances can make sense if there is a need for a large sum of money or if they can be used as a tool to improve your financial situation on the whole.

Both a home equity line of credit and a cash-out refinance have fees associated with them. With a cash-out refinance, fees are paid upfront in the form of loan closing costs. With a HELOC, several types of fees can be charged periodically such as an annual fee or inactivity fee for non-usage. One way for a borrower to reduce these fees is to shop around and compare lenders.

SoFi.com for details.

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Source: sofi.com