June 22, 2020
7 MINUTE READ
Can you trade houses with someone? If you have ever owned a car, you are probably familiar with how car trade-ins work — or at least are familiar with the concept. Usually, both homeowners are approved for loans, and while homes may differ in value, both mortgages are closed traditionally.
You simply show up on the car lot, test drive a few new cars, find one that you like, and sign some paperwork — and then you’re on your way with your new car, bidding your old car farewell in the rear view mirror. Wouldn’t it be nice if it was this simple when it comes time to buy a new house?
Most homeowners have likely never even considered that houses can be traded in, as well. Putting your home on the market in these uncertain times can be stressful, to say the least. On a national level, home values have fallen more than 20 percent, and houses are sitting on the market for an average of 8 months before selling. And while this may not sound too daunting, think about months on end of the meticulous cleaning and leaving your house at a moment’s notice (with kids and pets in tow, of course) any time potential buyers want to see your home. It would get old pretty quickly, don’t you think?
However, the market is in a bit of a slump, so the chances are good that you will have to wait a number of months for a good offer to come your way. This means that if you are desperate for a quick sale — if, say, you are moving out of state to relocate for a new job — you may end up taking a hit on the value of your home. And since most homeowners simply are not in a financial position to pay two mortgages at once, buying a new home often means selling your existing home first.
This also means there’s often a scramble to find the home that is perfect for you and your family after yours has sold. It all sounds pretty stressful, doesn’t it?
But what if there was a different way?
Believe it or not, house trading has been around for a long time, although recent market conditions have definitely bolstered its popularity. The word “trade” can be misleading, though, in that many people mistakenly believe that trading in your home simply means that you exchange keys with another homeowner, and then exchange friendly waves as your moving trucks pass on the street. While trading your home does involve swapping houses, it’s simply, well, not that simple.
There are still lenders involved and money does still change hands, since the finances of home trading are similar to that of buying a home. You still need to qualify for a loan, put down a down payment, and have a closing — in which you will sell your home and buy your new home, as two separate transactions. Your existing mortgage is paid off at this closing, and then your new loan for the new home begins.
So where does the “trade” come in? The difference in trading is that these events happen simultaneously, with both parties having closing dates scheduled at the same time. This ensures that you won’t end up stuck with covering two mortgages. And keep in mind that while you’re not legally required to work with a real estate agent through this transaction, it’s almost always a good idea to work with an expert who is experienced in these types of transactions.
Many, if not most, homeowners who are looking to trade their house are either in the market to move up, for more space or to upgrade homes, or move down, to cut expenses or downsize. Maybe you are outgrowing your starter home, now that you have added a couple of kids to your family. Or perhaps you are a new empty-nester and don’t need all of those extra bedrooms now that all of your kids are out of the house.
Either way, there is likely another homeowner out there who is looking for what you have — and also has what you are looking for. Homeowner trades of homes of unequal values are really just selling two trading homeowners’ homes to each other, with both sides seeing benefits from the sale.
Technology is taking over everything in our lives, and finding a home for trade is no exception. Today, the internet has made trading houses more prominent and easier than ever. There are a number of websites available to current homeowners who are in the market to trade their home.
Keep in mind that some of these sites charge a per-listing fee, while others are free, acting as more of a virtual real estate bulletin board, where people can easily see what is out there and available. These sites are also available to real estate agents and brokers who are trying to help their clients trade their home.
There are a number of reasons to consider trading your home. One of the top reasons for many home traders is the peace of mind that comes with knowing that your home has sold. For people who have to relocate quickly, such as for a job, or for those who just want to sell their home quickly and get on with their lives, trading can be a great option. Transactions involving home trades typically happen more quickly than in a traditional sales process, which could seriously help a homeowner who is trying to avoid foreclosure or a short sale.
Another benefit of trading your home is that you are more likely to receive the entire appraised value of your home, which allows you to preserve the equity you’ve worked so hard to build. And, since you are dealing directly with the owner of the other property involved, both homeowners can agree on a property value that they are comfortable with, that isn’t necessarily driven by foreclosures or short sales in the area. This is especially beneficial for people who own homes in declining markets.
Trading homes can also make it much easier to secure financing from your bank. Many homeowners report having difficulty qualifying for a second mortgage before theirs is sold, but if you have a contract to sell your current house (which you would in a home trade), your bank won’t count your monthly mortgage payment against your income or debt when you apply for your mortgage. Also, having this improved income to debt ratio can allow you to qualify for better terms on your new mortgage, saving you a significant amount of money in the process.
Builders, especially, can benefit from home trading. Not only are they moving their existing inventory, they also typically already have a staff in place who can do any necessary repairs and renovations on the home that was traded in, increasing its value — and their profit, once the house sells.
Of course, with anything that has pros, there are almost always cons, as well. Most often, the biggest downside we hear about trading in homes can be best summed up by the old adage that “beggars can’t be choosers.” In other words, you probably won’t have the ability to pick and choose the details you would like in your new home in the same way you would if you were navigating a more traditional home sale. And even though you may be able to get into the neighborhood you want, it may not be on the street of your dreams.
Another downside is that if, for some reason, both the purchase and the sale don’t happen simultaneously, you may still end up stuck with paying two mortgages. To help make sure that this doesn’t happen, it’s a good idea to use the same title company for both transactions. And keep in mind that if one of the homeowners owes more on his or her house than it is currently worth, they may encounter some difficulty in qualifying for a mortgage loan.
Are you selling your old home while looking for a new one? Learn more about our home trade in program! It takes the hassle out of home buying and selling. Even better, it’s sure to save you money. Find an agent or contact us when you’re ready to get started!