Buying a new house when you already own a house can be tricky, depending on your circumstances and goals. Fortunately, you have experience with the home buying process, so you know what to expect to some extent -- but the process might vary, depending on whether the second property is an investment, a vacation home or a new primary residence. Each of these scenarios brings variables that weren't in play the first time around.
The Housing Market
Before you buy a new home while you already own a property, you want to assess the state of the housing market in your area. Study comparable sales to determine the price and the amount of time homes are staying on the market. If prices are down and you’re looking for an investment or vacation home, you’ll likely want to move quickly. However, if your purchase is contingent on the sale of your current residence, it may not be an ideal situation while the market is low.
Buying a New Home
The way you approach the buying process will depend on your intentions for the new house. If you’re buying a vacation home or investment property, you will continue to own your original property, but you will have to qualify to buy the new property as well. You will have to come up with a down payment and likely obtain a mortgage. Mortgage rates on investment properties are often higher than on primary or vacation homes, so you’ll have to expect higher payments as well. On the other hand, if you’re looking for a new home with the intent to sell your old home, you have to coordinate both parts of the process.
Selling Your Current Home
In a perfect world, you would close on the sale of your current home the same day you close on the purchase of your new one, but that is rarely the case. If your current home sells before you can complete the purchase, you’ll have to make temporary living arrangements. If you close on the purchase before completing the sale, you’ll have to carry housing expenses for two properties. Often, this will require you to obtain some form of temporary financing while you look to complete the sale of the first home.
Financing the Down Payment
While living in a home and experiencing the various expenses that come with it, you may have a hard time coming up with a down payment for the purchase of a new one. If you have equity in your property, you can apply for a home equity loan or a bridge loan. A home equity loan has longer terms and is better when you don’t have a buyer lined up. A bridge loan works best when you have a buyer and you only need a few months to “bridge” the gap between your purchase and sale. Alternately, you might be able to borrow against your 401(k), if your plan allows for loans. You can borrow the lesser of $50,000 or 50% of your vested balance for a term five to 10 years depending on your employer’s policy.
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