Trading up a house is what people do when they already own a home but want to move to one that is bigger or in a different neighborhood. The basic concept is simple: Use the equity you have built in your current home to help you finance a more expensive home. The practical details of buying a home while you're selling a home can be tricky, but there are ways to do it without misery. Specifically, there are three different ways you can trade up houses. You can sell your current house first, you can have the buyer assume your mortgage or you can buy your new house before selling the old one. Coordinating the old mortgage and the new mortgage is difficult, and it's recommended that you have an experienced real estate agent to help you through the process.
Sell Your House First
Put your home on the market. The easiest way to do this is to contact a real estate agent. The agent will come and look at your house and ask you to fill out a disclosure form listing any problems you know about with the home. She will likely suggest a listing price for the home, take pictures of the home, and arrange for showings to potential buyers. You can then begin looking for homes in the area where you are intending to move so you can get an idea of how quickly homes in that area are selling and at what price, and be prepared when the time comes to buy your new home. Accept an offer on your current home. If the housing market is hot, this can happen quickly. You may have multiple offers for your home. Take the best offer.
Arrange to put your belongings in storage until you can buy your new house. In most cases, you will want to hire movers to make the process easier, although it is cheaper to handle the move yourself with some friends or family members and a rented truck.
You can also rent a home until you buy a new home. If you think this will be a long period of time based on your understanding of the market in the area where you are looking to buy, you can skip the previous step and take a long-term rental using your own furniture. However, in most cases, getting a furnished rental for a month or two is sufficient. Alternatively, you can stay with friends or family. Put an offer on a new house. Once it has been accepted, you can make arrangements to move your family and belongings into your new home.
Put your house on the market, again using a real estate agent. Contact your lender to see if your mortgage is assumable. FHA loans are assumable, as are most home loans. If the market is slow in your area, you might be better off listing your home with the notation that you are willing to let the buyer assume your mortgage.
Ask prospective buyers if they are interested in assuming your mortgage. Their willingness to do so might depend on how much of a mortgage you are carrying. If they agree, they will have to find financing for the difference between the balance of the mortgage and the selling price. For example, if the selling price of the home is $200,000 and your mortgage balance is $150,000, they will need to find financing for the difference of $50,000.
Inform your lender that you have prospective buyers who are interested in assuming the mortgage. The lender will provide them an application and a list of required supporting documents to submit. As for any other loan, buyers will need to prove that they are creditworthy; but the approval requirements for a loan assumption are generally lower than those for a conventional mortgage.
Ask the buyers to arrange for financing for the difference between the mortgage balance and the selling price. They can be working on this with their own lender while your lender is processing their application to assume the mortgage. Sign the papers from your lender transferring the mortgage to the buyers. Accept payment for the difference between the mortgage amount and the selling price. You may need to move out of your home and into a rental or other short-term housing while you begin the process of purchasing your new home.
Buy the New Home First
Look for homes in the neighborhood where you want to move. Determine an average price for the size of home you want so you know how large a loan you will need. Contact your current lender — or a new lender, if you find one offering better rates — and arrange to get pre-qualified for a new home loan. To do so, you will need to demonstrate creditworthiness and the ability to pay the new mortgage as well as your current mortgage.
Make an offer on a new home. This process can take some time, as the house will need to be appraised and inspected before you can finalize a purchase. However, in hot real estate markets, the seller might get several bids as soon as the house goes on the market, so be prepared to make an offer on a home if you want it. Sign the loan papers to purchase the new home. Your real estate agent and lender can guide you through each document, but it is essential that you read each page carefully and be sure you understand it before you sign.
Decide if you want to sell your home or rent it out. Even if you intend to sell the home, if the market in your area is slow, it may be wiser to rent it out for a year or two until the market improves and you can get a better price for the home. List your current home with a real estate agent and have her photograph your home. Move your belongings to your new home.
- Coordinating the old mortgage and the new mortgage is difficult, and it's recommended that you have an experienced real estate agent to help you through the process.
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