The Art of Upsizing (Or Downsizing)
Updated: Nov 14, 2019
Aah, the awkward shuffle of upsizing (or downsizing). First time homebuyers usually make up about 35% (give or take a few points) of the market, so that means the rest of you are selling a home and buying another one. There are a multitude of reasons for homeowners to leave one dwelling for another: needing more space for a growing family, downsizing after the kids leave the house, newly married, newly divorced, moving for a job, etc. The list goes on.
Selling one house and buying another seems simple enough, but it can get complicated pretty quickly. There’s more than one path to your ultimate goal, but the path you take will depend on multiple factors. Here are a few of my tips for navigating this situation.
Make your lender your new BFF
Starting this process with a lender is the best way to go. If you have a downpayment for the next house, but not enough income to carry two mortgages you will have to sell first and then buy. If you don’t have a downpayment, you will still have to sell first and then buy. A lender can help you figure out what you’re capable of doing financially, which will help you and your realtor to come up with a game plan. Let’s look at a couple of examples.
You have enough income and downpayment to purchase a new home right away
This is the best case scenario. I highly recommend buying first to avoid some of the stress or pressure that comes along with making a quick decision. No one wants to feel like they were forced to buy a home just because they needed one. The best part of this scenario is that you can choose a house without feeling rushed, and you will have a stronger negotiating position to buy since your offer won’t be contingent on the sale of another home. As soon as you go under contract, get your current house on the market. Be open to all offers, and negotiate with the end result in mind. The last thing you want is to get stuck paying two mortgages.
You need to sell first in order to buy (either because you don’t have the cash for a down payment or because you don’t have a high enough income to pay two mortgages)
If you are lacking cash on hand for a down payment, you can absolutely use the existing equity in your home as the down payment once it sells. You will need some extra to cover closing costs, but don’t think you have to have cash on hand for this whole thing.
Often times, people have saved for a down payment on a new home, but they can’t qualify for a loan because they don’t make enough to cover the two mortgages. Lenders will assume that you are paying two mortgages until the home you’re selling is under contract. This also means that you will have to sell your current home in order to purchase another.
In both of these cases, it’s recommended that you speak with a lender first and be prepared to make an offer on another home as soon as the time is right. Start by putting your house on the market and keeping an eye out for your next home. Once you receive an offer, a good realtor can help you negotiate a contract that gives you enough time to find and purchase your next home. Once you find your next home, the offer you make will be contingent upon your current home selling, so be prepared to keep the offer attractive in other ways. You may have to pay closer to listing price, be flexible with the closing date, or agree to keep repair requests to a minimum. In all fairness, the other party is taking a higher risk with you than they would be for other buyers. So show them why it’s worth it to sell their home to you.
If all goes well, it’s not unheard of to close on your original home on one day and your newly purchased home on the next day. Some people are even lucky enough to have them both close on the same day! It takes a lot of planning and a good amount of cooperation from everyone involved, but it can definitely happen.
You may need to rent for a short time in order to accomplish your goals
Sometimes renting is unavoidable, and more homeowners do it during transitions than you might think. It can be fairly common to rent when you opt to buy new construction. Even if you decide on your new home, sell your current one, and have the money to make it all happen right away, you may have to wait for your new home to be completed. Buying new construction isn’t the only time homeowners may rent for a time. Many decide to sell first and then wait to buy so that they can take their time looking. If you know that you have very specific needs or wants in your next home, there might not be anything suitable on the market right away. Preparing to rent for a couple of months can ease anxiety for a lot of people transitioning from one home to another.
Regardless of your situation, the best way to minimize stress is to start working with your lender and your realtor ahead of time to come up with a plan. Understanding your own limitations (with both finance and living situation) will set you up for success.