A lot of real estate literature tends to focus on first-time buyers. They’re typically viewed, not entirely without reason, as the group in need of the most help. But the truth is, homebuying can be a stress-inducing experience no matter how many times you go through it. Inventory shortages, difficult sellers, problems found during the home inspection are all things that both first and second-time buyers can relate to. There are also a few unique challenges that only apply to second-time homebuyers.
Whether by upselling or keeping their first purchase, you’re likely to run into a few of these for anyone preparing for their second home purchase. They say that practice makes perfect, and although you’ll have some advantages over a first-time buyer, you’ll also find that your second rodeo is nothing like the first.
Saving for a down payment may be more difficult this timeSaving for a down payment may be more difficult this time
Down payments can be quite a mountain to climb. But for buyers on their second purchase, it gets even more difficult. That’s because they can’t dip into their IRA for up to $10,000 penalty-free, a perk only reserved for first-time buyers. You have the option of borrowing from your 401(k) account, but that comes with many restrictions that may not make it a preferable option. Instead, your best bets are to either budget your spending and save for the down payment over time or sell your first home and use the proceeds to cover the down payment. But that comes with other challenges that are covered below.
You may have to manage two mortgages for a whileYou may have to manage two mortgages for a while
In an ideal world, the sale of your first home would perfectly align with your purchase of the new one. It can be done. But it’s rare for a real estate deal to go off without a hitch somewhere in the line. The buyer might not qualify for a mortgage or get cold feet at the last minute. Problems found in the home inspection of your new home that leads to extended negotiations. However, it turns out you might find yourself holding two mortgages at the same time. A prospect that many budgets can’t handle.
There are two ways you can address this possibility. You can try to get your first home sold before making an offer on your second home or save up an emergency fund to cover the two mortgages. Both options present challenges. If you sell before making an offer on a new home, you’ll need to find temporary housing for you and your family until the new home is bought. But if you go for the reserve fund route, that may reduce the amount you can put towards your down payment. How you handle this will depend on the state of your finances and what you deem to be more important to your interests.
There is also a third option, making the sale of your first home contingent upon the closing of your second. This can be a great safety measure to ensure you don’t get left with either two mortgages or no place to stay. However, these sorts of contingencies are not very popular with buyers. In a fast market where buyers have lots of options, you may have difficulty finding one who will agree to this. Make sure to discuss this with your real estate agent to determine what the best approach might be.
Prepare for your new mortgage application, and things might be different this time.Prepare for your new mortgage application, and things might be different this time.
Although you’ll have some experience with the mortgage application process, things may have changed since your first home purchase. This can be a major challenge for any second-time homebuyers who go in without knowing what’s different now. Take plenty of time to research different lenders and compare what rates you can expect to get. It may not go the same as it did last time, be prepared.
The key things that will determine whether you qualify for a mortgage are your credit score, your income, and how much debt you carry. Your debt-to-income ratio (DTI) will be a major factor, and over the years, the threshold for this has gone up. Fortunately, these are all things that you’ve probably dealt with before when applying for your first mortgage. As you did then, make a plan to lower your debts, raise your credit score and gather all the necessary documentation so that you’ll be ready when it’s time to apply.
Plan for a smoother move this timePlan for a smoother move this time
As you’ll remember from your first home purchase, moving day can be an exciting but also stressful experience. Boxes need to be packed and unpacked, everything needs to be coordinated with the movers, and a host of different things can go wrong. Plus, if you’re trying to coordinate two closings at the same time, you’ll be on an even tighter timeframe than you were last time.
Take whatever steps you can to prepare now and reduce the chances of any mishaps. You can start by decluttering your current home before you list it for sale. Go through all your possessions and toss out anything that you no longer use or attach any value to. Leave no stone unturned, and make sure to contact the movers a few days before the big day to confirm that they’ll be there and know what the plan is.
Some Good News: You now have an advantage over first-time buyer’sSome Good News: You now have an advantage over first-time buyer’s
There are certainly some unique challenges to buying a second home. But you now also have some key advantages that you missed out on last time. For instance, you’ll now have a sharper eye for assessing any listings during the home search. Using your experience, you can avoid common mistakes, ask the questions you didn’t think to ask last time, and have more confidence in your decisions this time around. All of this will be a major advantage if you find yourself competing over listing with first-time buyers.
If you are working with the same real estate agent as you did last time, then you’ll be able to get off to a faster start and have some previous rapport to smooth things over. But if not, maybe you want to find a different agent and now have a better idea of what you’re looking for in one. If you didn’t use one before, now might be the time to think about hiring a buyer’s agent. Unlike dual agencies, exclusive buyer’s agents work solely with buyers. With an agent like this at your side, you can be confident that you’re getting a good deal at a fair price.