As a result of the COVID-19 pandemic many people are considering a move in the near future for a number of reasons including needing more space, a change in work environment, or wanting a less urban lifestyle. As demand and prices for single family homes in suburban areas are skyrocketing, most buyers need the equity in their current home to purchase a new one. This poses the problem of selling first as a condition of being able to buy. The clear-cut solution known as the “double-move” is to sell your existing home and then find temporary housing until you find a new home, although the hassle and cost of moving twice is something most people would like to avoid.
Lenders have created products known as bridge loans (which carry high interest rates and expensive origination charges) designed to be a short-term lending solution to bridge the gap between buying your new home and selling your current home. Due to the terms and regulations, bridge loans are hard to qualify for and may not be in everyone’s best interest.
There are several alternative solutions to avoid a double-move that don’t involve expensive short-term loans:
- Sell your home and stay in it: Negotiating a multi-month rent-back agreement into the sale of your current home could help you bridge a gap in housing. This would allow you to receive the proceeds from selling your home and continue to live in it after the closing, for a specified period of time, while you search for a new home.
- Rent-back to the sellers: This is the flip side of rent-back agreement above. As the buyer renting back to the seller, you can use the extra income you receive from the rent to offset your additional mortgage payment, and it allows the existing occupants additional time to get organized to move while you sell your current property. This could be a win-win for the buyers and the sellers .
- Buy a home contingent on selling yours: Make your offer to purchase a new home contingent upon the sale of your current property to protect you from carrying two mortgages. This may be difficult to accomplish in today’s “seller’s market” (low inventory combined with a lot of potential buys) but might be workable depending on where you are purchasing or if a house has been on the market for a few months.
- Pursue more traditional lending approaches: Consider a cash-out refinance or Home Equity Line of Credit (HELOC) that uses a portion of your current home’s equity to make the down payment on your new home. This gives you access to funds to purchase a new home before selling your current one. Both of these strategies require some advance planning, so they are available to use when you are ready to buy.
- Embrace the double-move: Selling your home first and finding temporary housing while searching for your next home can be disruptive but could be an untapped opportunity for adventure. With so many people working remotely this might be the time to think outside the box and follow your dreams—put your belongings in storage and travel, rent an RV and tour the U.S., rent in another city or out of state so you can explore a new area before you commit to buying a house there—the sky’s the limit!