Dealing with a Double Mortgage
How Countless Americans Struggle with Twin Payments when Buying a New Home Before Selling the Old
(Left) 3402 Longfellow Blvd, Saint Louis, Missouri, Image from Zillow and (Right) 4 Kingsbury Pl, Saint Louis, Missouri, Image from Zillow
Selling and buying a home can be the most stressful experience in the life of any single person or family due to the enormous amount of planning, financial resources, and time poured into the process. Unexpectedly, the housing market is booming in spite of the COVID-19 crisis, with Diana Olick of CNBC reporting that “mortgage applications to purchase a home rose 3% last week from the previous week and were a stunning 40% higher from a year ago, according to the Mortgage Bankers Association.” While the housing market is hopping and thousands of Americans are searching to leave their current home in favor of larger lot sizes, lower costs of living, and the ideal home office, many prospective buyers will struggle to perfectly time the sale of their old house with the purchase of their new one.
The double mortgage, double utility payments, and double property taxes associated with owning two homes at the same time -- when you cannot afford to do so -- add an undue and unpleasant amount of stress to the residential real estate process, sucking the joy out of what should be a wonderful, exciting experience. Follow below to learn more about this pervasive problem and how to address it with Sandpiper Homes.
source: tradingeconomics.com
The median existing house price increased to a record USD 304,100. Year-on-year, existing home sales went up 8.7 percent. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021”, Lawrence Yun, NAR’s chief economist said.
Data Visualization by Joe Marin
Fearing a Fast Buy and Slow Sale
Time and money costs required to stage and maintain your old home can be immense when you have just purchased a new house (Left and Right) 4794 Magnolia Avenue, Saint Louis, Missouri, Images from Zillow
According to a recent study conducted by residential property listings management company Zillow and referenced in the company’s article “More than a Third of Americans Cry While Selling Their Home,” of those surveyed, “70 percent were stressed by uncertainty over the sale price, 69 percent were stressed their home wouldn't sell in their desired timeframe, [and ] 65 percent were stressed an offer would fall through.” These stresses are compounded by the fact that “61% of sellers are buying a new home at the same time, which adds significant pressure and financial complexity to the process.”
Many home sellers who plan to purchase within the same period may struggle to match a contingent offer, be forced into taking a lower offer or making concessions, or experience a loss of funds if the sale falls through. Furthermore, Zillow notes, “nearly 7 out of 10 people mistimed [the home buying and selling] process, with more than one third saying the sale of their home took longer than expected.”
Selling and Buying in a Tilted Market
(Left) 1909 Lafayette Avenue, Saint Louis, Missouri, Image from Zillow and (Right) 4974 Magnolia Avenue, Saint Louis, Missouri, Image from Zillow
Many home sellers who are buying a new home at the same time will suffer from a slow sale or a lower than expected sale price because of the current nature of the market. Market researchers and real estate experts expect buyers to have the advantage this summer and well into fall, a period during which sellers typically have the upper hand against buyers. This may mean that joint seller-buyers will be able to purchase a new home fairly easily and at a lower price than they expected, but will struggle to match the anticipated value of their old home in a sale, making delaying the sale and waiting for a seller’s market a better bet.
In his article “Will sellers or home buyers have the advantage this summer?” for The Mortgage Reports, contributing writer Erik J. Martin explains that “the buyer pool this year will likely be smaller due to job and income loss…[giving] buyers the advantage” if they have the funds available. Additionally, given that home prices are indeed rising -- with The Mortgage Report noting that “based on the NAR’s latest numbers, home prices on existing single-family homes for sale in March were still solidly strong, rising 8% compared to a year earlier” -- waiting until the market has reached its peak advantage for sellers may afford a joint seller-buyer a much better sale price than if they sold at the same time they purchased.
Data Visualization by Joe Marin
Managing Twin Payments
Payments include a monthly mortgage but also costs associated with keeping the lights on in two properties (Left) 1909 Lafayette Avenue, Saint Louis, Missouri, Image from Zillow and (Right) 3117 Longfellow Blvd, Saint Louis, Missouri, Image from Zillow
According to Mark Tassone in his article “Monthly Housing Expenses: The True Cost of Home Ownership” for Own Up, homeowners are recommended to spend “no more than 28 percent of [their] gross monthly income on mortgages and associated housing costs,” but this can be close to impossible when a joint buyer-seller has purchased a new home before selling the old. Keeping a previous home on the market while moving into a newly purchased house can incur a number of unexpected costs -- from those involved in continually staging the home to marketing fees from realtors. The financial investment required by the seller throughout the home selling process increases with every month that passes while the home is on the market -- due not only to the fees paid to agents, stagers, and brokerages, but also to the double monthly payments incurred by the seller.
Owning two homes concurrently means handling twin monthly principal and interest payments, property taxes, homeowner’s insurance, mortgage insurance, flood, earthquake or fire insurance, and Homeowners' Association dues. It also means paying double the utilities -- water and power -- and handling the maintenance and upkeep of the interior and landscaping of both properties. All of these payments can easily overwhelm a buyer-seller who has already purchased their new home, quickly rising to swallow up nearly 60% or more of their monthly income.
The Sandpiper Solution
(Left and Right) 1833 S 8th St, Saint Louis, Missouri, Images from Zillow
Buyer-sellers who have purchased a new home before selling their old property can recoup financial loss associated with double mortgage and utilities payments by staging and renting out their old home while it is on the market. In her article “7 Pro Tips To Help Your Home Sell Faster, For More Money” for Forbes, real estate writer Vanessa McGrady notes that “according to the National Association of Realtors, for every $100 invested in staging, the potential return is $400.” In her article, McGrady quotes home stager Betsy Wilbur (of Glendale, California) who has found that “staging can save you from a costly price reduction…[with] a staged home selling for 17% more on average than a non-staged home.” Staged homes not only sell for more than unstaged homes, but they also sell faster -- “statistically 87% faster than non-staged homes,” according to Wilbur.
Sandpiper offers seller-buyers the option to have their previous home filled with usable furniture that doubles as home staging and the perfect fully-furnished environment for corporate, short-term rentals (conference attendees in town for just a week) or for out-of-towner prospective buyers who wish to spend a bit of time in the home and surrounding neighborhood before buying. Sandpiper explains that their services can “create an income for home owners by staging their home with our furniture and letting our verified renters stay during the time house is for sale.” Sandpiper lists your old house on multiple reputable short-term rental sites in order to produce supplementary income that can cover your second set of monthly house payments. This extra cash allows you to keep your home on the market as long as necessary to produce the desired sale price, but Sandpiper’s listings also offer additional exposure, increasing the likelihood of finding the perfect buyer for your old home.
Find out more about Sandpiper’s essential service for joint home seller-buyers through their website.