How to Buy a New Home if You Already Own One

If you already own a home that you need to sell in order to buy, buying a new home can be somewhat more complicated. However, here are various options for making the buy/sell transaction go smoothly. 

1.  Sale and Settlement contingency. You can make an offer contingent on listing and selling your house and you can get it accepted.  This is best for properties that have been on the market for at least 30 days. If the property just hit the market the seller will want to take offers without such contingencies. This kind of offer is not as attractive to sellers but will work for a property that has been sitting on the market for a while. You can transfer your equity from your current home to your new home right away.
2. Settlement only contingency. You can make an offer contingent on the closing of your home.  You can list your home, find a buyer and negotiate a long closing date (60-70 days).  You can then shop for a new home during the pendency of the sale. This kind of offer is more attractive to sellers. However, the downside is that you must sell and move out of your current home when the new buyer closes. 
3. Sale and lease back. This can be added on to either of the options in 1 or 2.  This allows you more time to move and to not have two closings in one day.   You would have to negotiate essentially a lease with the buyers.  For example, you can take 45 days to close and then about 60 days to stay in the house afterward.  You may have to pay rent. During the pendency of the sale and/or lease, you must locate a new home. The plus side is that your cash is freed up and you don't have to do two closings in one day. 
4. Purchase without contingency on sale of existing home. If you can afford both housing payments you can make an offer that is not contingent on the sale of your existing home. This is more preferred by sellers and in today's market this is the only way to get a house that has been just listed

• How do you transfer your equity to the new house ?   
  • Option 1: Recast your loan. If you would like to transfer your equity from one house to the next house, you can do a recast of your new loan.  You can make a one-time payment toward the principal of your new loan and follow the lender's recast procedures.  There may be a small fee to do this. This will reduce the principal balance and lower the monthly payment. You can possibly also get rid of private mortgage insurance (PMI) by recasting the loan as long as you follow the lender's procedures.  You would need enough cash to make at least a 5% downpayment on your new home for a conventional loan and also your closing costs. 
  • Option 2.: Use a HELOC.  You can take out a Home Equity Line of Credit (HELOC) on your existing home and then use those funds to make the downpayment on your new home.  However, you must be able to quality for the new mortgage, old mortgage, and HELOC all together.  Taking out additional debt will increase your debt-to-income ratio. This option is more complicated and less preferred.  If you are downsizing and can use the HELOC to make a cash purchase, then a HELOC makes more sense.