How second-time homebuyers should approach today’s market
The real estate market lately has made it a great time to sell a home — which means it’s not a very easy time to buy one, a conundrum for anyone who falls in the category of a second-time homebuyer. Even so, plenty of people are managing to make the trade from starter home to upgrade property: Data from the National Association of Realtors shows that 68 percent of people who purchased a home between July 2022 and July 2023 were repeat buyers.
Maybe you need more space because your family has grown, or perhaps you want to find a place closer to work or school. Whatever the reason, read on to figure out whether now is the right time to sell your house, and how to buy your next one.
How to buy your second house
Your journey as a second-time homebuyer will likely look a lot like it did as a first-timer — but easier this time, because now you’re an old pro. It will probably start with the same first step you took last time around: finding a mortgage lender.
Mike Opyd, president/owner and managing broker at RE/MAX Next in Chicago, recommends talking to a lender before making any other moves. “You don’t know what’s happened since you bought the first time,” he says. “The strategy of buying the second place will relate closely to your conversation with the lender.”
Be aware of what has changed with your own finances since your last purchase. For example, hopefully your income has increased since then, and perhaps your credit score has risen too, which would help you qualify for a lower mortgage rate. Have you been saving for a down payment? The more you can put down on your new home upfront, the less you’ll have to borrow. You might be able to afford more than you think.
It’s also important to understand what has changed in your local housing market. The past few years have featured some staggering price appreciation in certain parts of the country, so you’ll want to go into the process with a solid idea of how much your home is worth, and how much house you can afford for your next purchase.
Selling before buying
Selling a home and buying another at the same time can be tricky. Selling first makes logical sense: More than half of repeat buyers put the proceeds from the sale of their previous home toward buying their next home, according to NAR. If you make a sizable chunk of money from the sale, that makes coming up with a down payment much easier. On the other hand, though, selling first means having to find another place to live until you can close on your next purchase. That can be tough, especially for families with children.
If your plan is to rely on the money from the sale to help make the next purchase happen, Opyd says that the most important piece of the equation is having a plan in place for temporary housing. “Some people might opt to live with their parents for a month and put everything in storage,” he says.
You can also look into short-term rentals, but keep in mind that options could be very limited, as most landlords want tenants that can commit to a full year lease. And if you’re aiming to go the Airbnb route, expect to pay a premium.
If you do need to sell before you buy your next place, make sure you work to get preapproved for your new mortgage as soon as the deal is closed and the money is in your bank account. That cushion of cash will play an important role in your borrowing power.
Buying before selling
If temporary in-between housing is not an option for you, there are plenty of ways to buy a new home before getting rid of your old one. Bridge loans can be an effective way to facilitate the transition, Opyd says: “A lot of people worry because they typically have higher rates, however, it’s very temporary. As soon as you sell your place, you pay off the loan.”
And if you’re sitting on a comfortable amount of savings and your finances are in excellent shape, you might even be able to get approved for a new mortgage without listing your current place first. You will likely wind up carrying two mortgage payments for a month or two in this case, which can be pricey — but moving costs money too, and this route saves you from having to move twice (once temporarily and again to your new permanent home). Work closely with your real estate agent to come up with a strategy to avoid letting those dual mortgage payments stretch on too long.
There are also companies out there that offer services specifically designed to solve the juggle of buying and selling simultaneously. Look into platforms like Flyhomes, Orchard and Opendoor — just read the fine print on these options to make sure you understand the pricing structure and fees.
Make the strongest offer you can
You might be wondering whether you can make an offer on a new home while you’re still waiting for your current one to sell. That kind of scenario would require inserting a contingency clause in your offer stating that you won’t buy the second home until your current one sells. While this is not uncommon, it can be a non-starter in competitive housing markets right now.
“With the lack of inventory in the current market, you can’t go into your second purchase with a contingency,” Opyd says. “There’s just way too much competition.”
Opyd likes to ask his clients to put themselves in the seller’s shoes. “When you sell your place, are you going to want to accept an offer with a contingency when there are other offers that don’t have that extra weight? The answer is always no.”
He also points out that second-time homebuyers have a leg up on a lot of the competition. “Most second-time buyers have more income, and they have been in their jobs longer with an ability to make a bigger down payment,” he says. “Use it to your advantage. When you find a place you really love, make a competitive offer. We’re not in a market where lowballs are going to play a factor.”
Don’t underestimate the power of experience, either. “When you’re buying for the second time, you’ve already gone through the process,” Opyd says. “You’re not a blank-canvas, first-time buyer who has no idea what they’re looking for. You probably know what kind of space you need, what neighborhood and, if you have kids, what schools you want them to go to.”
Homebuyer assistance is still available
While first-time buyer programs tend to get all the attention, help is available for second-time homebuyers too. Even if your income has increased, the finances of homebuying are challenging right now, due to high interest rates, inflation and other factors out of your control.
Check into what types of assistance programs are offered by your local or state housing authority — plenty of organizations have options to help repeat buyers afford a new home, particularly those who qualify as low- or moderate income and those who are buying in targeted areas. Consider all types of home loans, too, as some have much lower down payment requirements than others.
Hire an agent
Buying a house can feel overwhelming, even when it’s your second time around. Having an experienced pro by your side gives you an extra level of confidence. Find a local agent who can help you navigate the process — ideally someone who knows your area well and has a plan to help you find the right property to begin your next chapter.
FAQs
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No. You do not necessarily need to make a 20 percent down payment when you buy a home, regardless of how many (or few) you’ve bought before. Doing so will help you avoid an extra monthly charge for private mortgage insurance, but many mortgage products have much lower down payment requirements — and some don’t require any down payment at all if you qualify.
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In many ways, yes. Since you have already been through the process once, you will have a good understanding of what to do to already, and if you make a good profit on the sale of your first home, you’ll be able to put it toward the down payment on the second. However, there are plenty of challenges that can arise with the timing of selling your old home, finding temporary housing and buying a new place. It’s OK if you still have buying questions — your agent will guide you through. Additionally, the market is likely much different than when you bought the first time, so be prepared for both higher prices and higher mortgage rates.
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Selling your house first can be helpful: You’ll be able to put the proceeds toward your next down payment and avoid paying two mortgages at once. However, there are logistical complexities to consider before going this route. You’ll need to make a plan for where you’re going to live in between when the old home sells and the new one closes — and you’ll have to move twice, once temporarily and again to a new place.
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