Can you trade in your house like you can trade in your car?

House trading has been around for a while, and it's becoming more popular due to the conditions of today's housing market. The word "trading" implies that you exchange front door keys and high-fives as your moving trucks pass each other on the road, but that's not exactly how it works. Trading does involve swapping houses, but even if both houses are valued at the same amount, there are still lenders and lawyers involved and money does change hands. The finances of trading houses are pretty much the same as if you were to buy a house. You have to qualify for a loan, come up with a down payment and have a closing, which involves selling your house and buying the other house as two separate transactions. Existing mortgages are paid off at closing, and you get a new loan for the new house. The difference with trading is that these events happen simultaneously, with both parties' closing dates scheduled for the same time. This provides assurance that you won't be stuck with two mortgages.

You don't have to use a realtor, but if you're not familiar with real estate transactions, it's probably a good idea. You can save money by using one realtor instead of two, and they may be willing to give you a deal since they didn't have to do the legwork of finding you the house.

Because the housing market is cyclical with its up and down periods, builders have been trading for years during times when the market slows down. In the case of a trade, a builder would buy your house and sell you one of his or her new homes. Each builder has a different set of terms, but typically to qualify, you need to be looking to upgrade to your new home.

Technology has helped to bring house trading into the forefront, and Web sites like goswap.org and onlinehousetrading.com have become real estate matchmakers for motivated sellers.

There are many good reasons to consider a home trade, and the top one for many traders is the peace of mind in knowing that your home has sold. Trading is a good option for people who have to relocate quickly for a job or just simply want to sell their house and get on with their lives. The transactions of house trading usually happen much more quickly than during the typical selling process, which could feasibly help a homeowner trying to avoid a short sale or a foreclosure. Another big pro is that you're more likely to receive the appraised value for your house, allowing you to preserve the equity you've built. Since you're dealing directly with the owner of the other property, both parties in a trade can agree on property values they're comfortable with that aren't dictated by foreclosures or short sales in the neighborhood. This is a big boon for people who own homes in declining markets.

Trading homes also makes it easier to get bank financing. Most homeowners have a hard time getting a loan for a second home before theirs is sold, but as long as you have a contract to sell your current house, banks don't count your monthly mortgage payment against your income when you apply for a loan. Also, having a better income-to-debt ratio often allows you to get better terms for your next mortgage. Upgrading is more of a possibility than ever because more homeowners are looking to downsize since the housing bubble has burst.

Builders benefit from trading because they're moving their inventory in which they have a considerable investment. Plus, they usually have the staff to do repairs and renovations necessary to increase the value of the traded-in home.

Of course, with the pros come some cons, the main one being that beggars can't be choosers. You most likely won't have the same flexibility to pick and choose details that you would like in your new house as you would if you were negotiating a regular sale. And though you may make it into the neighborhood you want, it may not be on the particular block you desire.

Another minus is if the selling and buying don't happen all at once, you could wind up stuck with two mortgages. For this reason, it's recommended that one title company is used for both transactions to avoid this scenario. Another issue that could come up is if one of the parties owes more on their house than it's worth, they'll probably have some difficulty qualifying for a loan.