Home exchange. House swap. House trading. By any name, it’s a twist on home buying and selling that can spare both parties the irritation of showings and the expense of agent commissions.
Trading homes isn’t done every day, but maybe it’s an option waiting for your exploration.
What Is House Trading?
You’re likely familiar with home exchange programs when it comes to vacations. You dash off to a lovely apartment in Paris, and the folks come to the Big Apple to enjoy your SoHo loft. Both parties enjoy a vacation with a much lower price tag.
But what’s talked about much less is permanently trading homes. Find the idea intriguing? Here’s what you need to know.
How Does House Trading Work?
Think of a house swap as a win-win. You want to sell your house. You find a home you like, and the homeowner is interested in buying your home too. It happens.
What comes next? You trade. This means there will be two simultaneous transactions. You sell your home to the Joneses, and they buy yours, typically on the same day. Because you’re selling and buying at the same time, it’s much like a trade. This is not a simple transaction, though. You want the stars aligned on that day.
However, there are some similarities to buying a home the traditional way. Expect the basics of the home buying process to be the same: getting a home inspection, doing a title search, qualifying for a mortgage, and closing, when you will sell your home and buy the new one in two separate but simultaneous transactions. You pay off one mortgage, if you have one, and take on a new one if needed. At the same time, the other party will sign their purchase and sale agreement.
As much as doing all this at once may feel overwhelming, the upside is that you won’t have two mortgages on your hands at the same time. If both homes are owned free and clear, then the only money matters are transfer taxes and closing costs.
You’ll probably want a real estate lawyer who knows how these deals work at your side.
It could be that you have a good friend or relative who loves your home, and you, theirs, and you’re interested in trading. But the more likely circumstance is that you find your match in cyberspace via home exchange websites and through social media.
What If the Homes Are Unequal in Value?
It’s quite probable that the two homes won’t be of equal value. That’s not a deal-breaker, though. What matters is whether each house meets the needs and desires of the other party.
It’s important for both parties to order home appraisals. If one home is more valuable than the other, the buyer of the more expensive home pays the seller the difference at closing.
To make the home exchange even, some folks have been known to include a boat or car in their side of the deal.
How Common Is It?
Trading homes is not something that happens every day, but as people continue to search for creative ways to fulfill their dreams, and technology helps connect like-minded folks, it’s likely the use of house trading will grow.
Pros and Cons of Trading Your House
Pros
There’s something to be said for this unconventional way of buying and selling a home. One biggie is that you may be able to buy a house without a Realtor. If there is no real estate agent involved in the trade, both buyer and seller keep the money they would have shelled out to their agents.
You eliminate some of the hassle of moving day. Because buyer and seller are working in concert, it makes orchestration of the move easier.
Another benefit is that you miss the whole dog-and-pony show of potential buyers traipsing through your home and the stress of having it look perfect for showings.
You also may find that getting financing when trading a home is easier. Some homeowners encounter hurdles qualifying for a mortgage before their home is sold, but if you have a contract to sell your current house (which you would in a home trade), your lender won’t count your monthly mortgage payments as debt if you apply for a mortgage.
Having this improved debt-to-income ratio can allow you to qualify for better terms on your new mortgage, which just might save you a ton of money as well.
Cons
Trading isn’t without its issues. What if you’re in a hurry to move? You may not be able to find someone who wants a house swap as quickly as you want to move.
Truth is, house trading may mean you have fewer options, you may not get the neighborhood you have in mind, or you may not find a home with all your dream features.
Know too that if you owe more on your mortgage than your home is worth, you may have trouble getting financing. The only way a trade would work is if you pay the lender the difference of what you sell your house for and what is still owed on the mortgage.
If for some reason the purchase and sale don’t happen at the same time, you could be stuck for a time with two mortgages. You can lessen the odds of that fiasco by using the same title company for both transactions.
| Pros of Trading Homes | Cons of Trading Homes |
|---|---|
| You may not need to use a real estate agent | May not find a home as quickly as you want |
| Getting financing may be easier | Fewer options |
| Avoid the hassle of showing your home to multiple potential buyers | Could have to temporarily pay two mortgages |
Trading Houses vs Conventional Selling
With trading there’s a good chance you will be able to avoid using a real estate agent if you find your trading partner on your own, be it a relative, colleague, friend of a friend, or from a website. You can also avoid the tradition of showing the home to prospective buyers.
There are some things that are pretty much the same.
Both parties may need new mortgages, and both may want home inspections. Both will probably want attorneys present.
| Trading Homes | Conventional Sale |
|---|---|
| Likely no real estate agent | Usually buyer’s and seller’s agents involved |
| Small market | Wide market |
| Deal with one buyer | Handle multiple offers |
The Takeaway
Trading homes is a viable option for house hunters who find a trading partner with a mutual real estate admiration. While the home exchange approach is decidedly nontraditional, some rituals of a house swap are the same.
You want to take care in your search for financing, for example, try finding an online mortgage lender that best suits you.
3 Home Loan Tips
- To see a house in person, particularly in a tight or expensive market, you may need to show proof of pre-qualification to the real estate agent. With SoFi’s online application, it can take just minutes to get pre-qualified.
- Not to be confused with pre-qualification, pre-approval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for pre-approval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
- Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
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Photo credit: iStock/AndreyPopov
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