How the home buying process is different when you already own a home.

Buying a home when you already have one comes with a unique set of challenges that are not applicable to a first-time home purchase. Here’s how the process might be different from the last time you bought a home.

A change in buying power

The current reality of higher interest rates will affect you both as a home seller and home buyer.

As the seller of your current home, recognize that potential home buyers have less buying power. Compared to a couple years ago, the number of people who can afford your home may be fewer.

Simultaneously, higher interest rates will also affect how much home you can afford to buy. According to Consumer Affairs, a difference of one percentage point can lower what purchase price buyers can afford by almost $47K. For example, a loan at 5% compared to 4% reduces home buying power by $46,939.

Credit standards may be higher

Depending on when you bought your current home, lending standards may now be more stringent. Specifically, lenders have tightened standards for a buyer’s debt-to-income ratio (DTI)—the amount of debt compared to their income.

To keep your DTI low, pay off as much debt as possible and try to avoid taking on new debt.

Retirement funds are off limits

Many first-time homebuyers take advantage of the ability to tap an IRA to cover their down payment. Second-time homebuyers aren’t allowed to withdraw retirement savings to fund a home purchase.

However, there’s an exception; if you previously owned a home but haven’t owned one in the last two years, you may be considered a first-time homebuyer. If you have a gap of two or more years in home ownership, consult with a tax advisor to determine if you qualify as a first-time homeowner.

You have a house to sell

In a housing market with tight supply, home sellers are less likely to accept a bid that’s contingent on selling another house. This dynamic means second-time home buyers need a plan for what to do between homes.

One option is to ask the buyers of your home to rent the home to you for a set period. Some home buyers are okay with delaying their own move-in date in exchange for rent payments. However, including a stipulation that allows you to rent the home might turn off some prospective buyers.

Another option is to sell your house and move to a temporary place until you find a home to buy. Renting month-to-month removes the pressure of having to find a new home by a certain date.

Managing your down payment

For many folks, most—if not all—of their down payment for a second-time home comes from the sale of their first home. Before shopping for a new home, get an accurate assessment of your home equity so you know how much you’ll likely have for a down payment.

If your home equity falls short of your desired down payment on a second-time home, identify how you’ll make up the difference. Do you have a savings account or CD set aside for a new home? Will you receive a gift? There are many ways to fund a down payment.

How to get the best mortgage deal
Second-time home buying is similar to first-time home buying in one key way—what it takes to get the best mortgage deal. Home buyers who get the most favorable mortgage rates do three things:

• Make the largest possible down payment
• Keep their credit score as high as possible
• Keep their debt-to-income ratio as low as possible

When you’re ready to buy a new home, turn to us for a competitive Consumers mortgage as well as personalized, local service.

Consumers helps thousands of members finance land, first and second homes, and home improvement projects each year. We’d love to help you with a mortgage or home equity line of credit; contact us online or call us at 800.991.2221.

*All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions.