The chicken-or-the-egg scenario is being played out repeatedly in today’s Miami real estate market. Homeowners want to leverage the profitable seller’s market and the low interest rates to get into their next property. But a question I hear daily is, “Should I sell before I buy?”
It’s no surprise that this question is so common, as 71 percent of repeat homebuyers owned their prior residences, making it quite likely that they were simultaneously the seller and the buyer. Over 50 percent of the profile of buyers in today’s market are cash buyers or can purchase another residence without having to sell their current home. But for the rest of the buyers out there who require financing and need to sell their home, here are some important considerations.
- Do you have sufficient funds on hand to make a competitive down payment? If the majority of your cash is tied to the equity in your current home, this may be a deal killer.
- Can you afford two mortgages simultaneously? The goal is not to be in this predicament, but in the event that it happens, can you sustain it for several months?
- Have you gone through a preapproval process with a trusted lender? You may be under- or overestimating what a bank will be willing to offer you.
In the past, I would have advised my buyers to make an offer contingent on selling their own property. That is not remotely an option in this current highly competitive seller’s market. On the contrary, I’d advise including the reverse contingency if your current home goes under contract: Stipulate that you can cancel the contract if you have not found a home to buy.
If you can’t carry two mortgages, a bridge loan may be a viable option. A bridge loan is a short-term loan that taps into the equity in your current home to get the necessary down payment to complete your purchase. My company, Compass, specifically offers a bridge loan program that simplifies the process.
There are several other significant nuances that have to be discussed, but with the above being considered, I must emphasize that buying and selling concurrently is possible. However, it requires a strong working relationship with a trusted lender and an experienced Realtor. Let the experts navigate for you. It is not for the faint of heart!
Given the immediacy in our current market, a buyer needs to be able to react extremely quickly when they see a home they like. Buyers have to be ready to submit an offer immediately, with all their ducks in a row. The number one thing to have on hand is clarity regarding your finances. This is one instance when you can’t be scrambling at the last minute.