It happens: we outgrow our homes.
That’s what happened to Sara and Mike. With two children sharing one bedroom and both parents (like so many right now) working from home, they had outgrown their 3/1 Wheaton house. But how to work the timing and financing in order to sell your current house and buy a new one at the same time?
At Collective, we can talk through several strategies to consider for clients wanting to concurrently sell and buy.
Here’s the tactic that worked for Sara and Mike.
They didn’t have 20% down available for their next home without selling their current place, but they wanted the assurance of buying their next home before they sold the one their family was living in. However, in this seller’s market, we knew that an offer contingent on a home sale wouldn’t ever win against other equally competitive bids. We considered selling first and then using a “home of choice” contingency and/or a “rent back” period after settlement to give them time to find a new home after going under contract, but Sara and Mike didn’t want to stress over having a limited time frame in which to find their next home. Especially not in this market.
The solution: a home equity line of credit (HELOC). My clients worked with a local bank to obtain a home equity line of credit secured by their current home. They were able to borrow up to 85% of the home’s current value. The equity garnered over the seven years they’d owned their home was enough to provide the extra funds they needed for a 20% down payment. (While 20% down isn’t always required, in this case, Sara and Mike wanted to secure the best interest rate possible and didn’t want to pay PMI.)
For those with equity in their home, a HELOC is a seamless option that can help buyer-sellers balance their financing needs. Once you settle on the HELOC, you have access to a line of credit that you can draw on. If you never draw on it, you don’t pay anything because you haven’t used any of the money. When you use it, you just pay based on what you’ve used (in the event that you don’t use all of it).
My clients closed on their HELOC in about 30 days and we started shopping. During this time, I gathered estimates for painting and other listing prep needed on their current property so we’d be ready to go to market quickly once they’d closed on a new home.
We found the home they loved in Garrett Park and made a strong and creative offer with a deadline on the first day that it was on the market. The seller accepted our offer and canceled a weekend full of showings and open houses. In fact, the transaction happened so fast that the listing agent told me repeatedly that he had many other agents calling him angry that the seller accepted our offer so quickly.
Four weeks later, my clients settled on their new home in Garrett Park and moved in.
As soon as they moved, I executed on our listing prep plan. I organized, scheduled, and oversaw painting, light fixture swaps, cleaning, and staging. Ten days later, the home looked amazing and we went on the market. Within four days, we had over 40 showings, four offers, and went under contract for 10% over the asking price. Two weeks later, we were settled.
Upon settlement, the HELOC was paid off completely.
During the whole process, Sara and Mike were able to avoid any double mortgage payments and only had to make two HELOC payments.
Congrats to Sara and Mike and their family on finding their new home. We are happy we could have a make it work moment for them!
If you are looking to buy or sell your home—or both—reach out to us! We are always happy to brainstorm your situation and see what we can make work for you!
(Note to readers: In order to use a HELOC work like this, you need to make sure that your debt-to-income ratio remains under the max limit during the brief time that you carry both mortgages plus the HELOC. Your loan officer can check this for you.)