When it comes to stress, home buying is an equal opportunity experience. No matter how many times you go through the process, and no matter how fantastic your professional team is, some aspects of the transaction are virtually guaranteed to increase your heart rate.
There are some challenges that affect all buyers equally, including second-time home buyers. For example, a shortage of available homes will spell a highly competitive market for anyone who is looking to buy. Second-time home buyers may even have a slight advantage in a fast-moving market. After all, they are often experienced house-hunters with a sharp eye for problems and confidence to make decisions quickly.
However, second-timers also face a unique set of difficulties. Here are a few ideas and tips for second-time home buyers that could make the process a little easier.
Let’s begin by acknowledging that saving up for a down payment is difficult for first time buyers too. According to a recent survey from the National Association of REALTORS, 13% of buyers think it was the most difficult part of the process! However, second-time home buyers can be at a disadvantage when it comes to the down payment. First, they cannot dip into their IRA penalty-free, as that perk is reserved for first-time home buyers. Second, life tends to get more complicated as it goes, which can jeopardize consistent savings.
What should they do? The most obvious (and hardest to implement) answer is to use a budget.
Budgets get a bad rep, but getting a strong understanding of your inflows and outflows is an excellent starting point to building up your savings. Automate good behavior as much as you can: apps like Betterment and Digit make it easy to set up periodic withdrawals from your main account. It is also a good idea to save one-time windfalls like tax refunds, large bonus checks, lottery winnings, and gainful outcomes from a particularly lucky night in Las Vegas.
Another way to boost your capacity to handle a down payment is to sell your first home first. This path works well if you can manage the timing of the sale and subsequent purchase (more on that next).
In the perfect world, the sale of the first home and the purchase of the next one would be seamless. You would not have to worry about a transaction falling through because the buyer did not qualify for a mortgage or got cold feet at the last moment. Unfortunately, the real world can be unpredictable, and your first home may not sell as planned. Making two mortgage payments next month is a possibility that many budgets cannot handle.
What can you do to avoid this scenario? Unfortunately, the only way to guarantee the timing is to sell your current home first (i.e. not just get an offer but go through the whole process to closing). This strategy does address the uncertainty, but it also requires you to deal with the logistics of finding an interim place to live while you look for your next home.
If that path is not for you, consider boosting your emergency savings to draw upon if you find yourself with two mortgages. The more reserves you have, the better equipped you are to wait for the right offer (instead of settling for a low offer just to stop the hemorrhaging).
The timing of the sale on your first home is a two-sided coin. If it does not happen as quickly as you had hoped, you risk being stuck with two mortgages. However, selling the first home too quickly can also backfire, especially if you don’t have a plan.
One idea to manage timing is to make the sale of the first home contingent upon the closing on your next home. If the purchase of your second home falls through, you would still have your current home. It may sound like the best of both worlds for you, but it also puts the buyer of your current home at a disadvantage. In a fast-moving market with plenty of properties to choose from, buyers may not be comfortable with that contingency, so be sure to consult with your realtor to understand all the risks.
Even if you are not facing the imminent possibility of being out of your first home with no second home in sight, it is smart to create a backup plan. Spend some time thinking of a few alternatives, such as renting a furnished apartment, negotiating with a buyer who might let you rent your old home for a couple of months, or moving in with local family or friends. That way, you’ll have some ideas to explore if the unexpected happens.
By the time they own their first home, most people have had their share of moves and know why moving is one of the top five most stressful situations you can experience. All moves are challenging, hectic, and disruptive. However, there is an argument to be made that moving between homes is tougher than dealing with an apartment move. You often have more boxes to pack, more decisions to make, and often a tighter timeframe to do it in. Is there a better way?
The answer is to do your prep work early. That includes decluttering your home well before you list it for sale. Go through every room and closet, tossing out things you have not used in the past year or two. Don’t forget about the attic and the garage, as they are often convenient hiding place for boxes you have not unpacked since you moved in. Clothes, toys, books, and house gadgets in good condition could be sold or donated. If you are looking for inspiration on lightening up your load before the big move.
Despite the unique challenges that face second-time home buyers, the status also comes with some advantages. You might discover that you have an edge over the first-time buyers because you have done it before. Your experience will guide you around common mistakes, give you confidence to make decisions, and provide perspective to manage your emotions through the highs and the lows of the process.
Just as a first-time transaction, remember that choosing a home mortgage company is a critical component of your experience. Whether you are looking for a larger home to accommodate the kids, a multi-generational home that will have a place for your aging parents, or downsizing, choose a professional team that you can trust to be on your side.