Making a move from one property to another home is a common thing most homeowners or soon-to-be homeowners will face at least once in their lives. However, this can tend to be especially difficult for those juggling the sale of their current home while researching and trying to perfectly time the purchase of a new home.
If you list your home too soon, you risk being homeless and having to find a temporary place for yourself, all of your things and possibly your family. In contrast, if you wait too long, then you could have to deal with the financial burden of having to pay two mortgages at once.
So, is selling one house and buying another the best option for you? What should you do before you make an offer?
Before You Make An Offer...
If you're selling a home and debating making an offer on another, it is important to familiarize yourself with the real estate market. With the sale of any home, the offer price could be below, above or at asking price. Make sure you are aware of this when making another offer because your home might not sell for the price in which you listed it, or your home sale could take much longer than expected.
Typically, making an offer on another home that’s contingent on the sale of your current home can be tricky and difficult. Most sellers (just like you) will favor an offer that has no contingencies as there's a higher chance of it going through on time. As a result, it may be difficult to make a competitive offer, so it's important to keep this in mind when deciding which plan of action to take.
Should I sell my house before I buy a house?
A homeowner may sell his or her property for various reasons including relocating, upgrading to a bigger home or even downsizing. No matter the reason, the purpose is to sell the old house and most likely buy a new one. While searching for a new house, you may ask yourself, can and should I buy another house before I sell mine? Or how can I buy and sell at the same time?
There is no single answer around whether purchasing a new house before selling a current home is the right or wrong decision. It depends on your circumstances, but we can address some pros and cons of doing so.
What are the pros of selling a house before buying?
Selling your home first can provide you with many positives. First, it gives you enough time to prepare for your future home purchase with less stress, hurry and panic over the sale of your current home. It also gives you a better idea of the time you have to prepare yourself for relocating from one place to the other.
In the case of mortgages, it can also be beneficial or even your only option to sell your current residence before buying another one. Sometimes lenders will refuse to let you borrow funds for purchasing a new property until your old one is sold. In this case, the best solution for you would either be to sell your property first or to add a contingency clause to your contract which states that the purchase of your new home is based on the sale of your current residence.
If your bank allows you to hold two assets simultaneously, make sure that you can afford it and not regret your decision when your funds are strained.
What are the cons of buying a house before selling?
Buying a house before selling can not only lead to positive benefits, but also some obstacles that may be difficult to overcome. To start off, buying first can result in tremendous financial pressure or instability as you may get stuck with the expenses for not one but two homes.
Secondly, buying a house before your other one sells could cause immense stress due to the uncertainty of when your property will eventually sell and when the double payments will stop.
Also, as we mentioned previously, some lenders may require a contingency clause in your offer on your new home that could hinder that closing until your current residence sells or affect the competitiveness of your offer as most sellers won’t want their sale to depend on the sale of your current home.
So, why do sellers buy a new house before selling their own?
What’s the primary motivation for homeowners to go this route? After all, it is the more difficult option for some people. Here are a few more reasons why it can be beneficial to buy a new house before selling yours:
It is a seller’s market
In the current real estate market, there are more buyers shopping than sellers listing. As a result, sellers have a higher chance of selling faster – even within a couple of days of hitting the market. Therefore, there is less overall risk with buying before selling because your home has a higher chance of getting offers.
Please note, if you need to make a contingent offer, then it may be more difficult to go this route as less sellers are likely to accept a contingent offer with more competition. This will however depend on the specific property and situation. If you do not need to make a contingent offer, then you should have no issue making a competitive offer.
Another benefit of this market for you as a seller would be the potential to sell your current home for over asking price or with multiple offers to choose from.
A deal is too attractive to wait
There are some cases when the purchase of a new home before selling your old home is not your goal. However, regardless of the market, you might find a deal on a home that you simply can’t pass up.
There are various reasons for deals on homes including builders needing to sell, highly-motivated sellers who need to move for a new job, homeowners needing to free up funds, or even divorcees needing to sell their joint home. Whatever the reason may be, highly-motivated sellers might offer you a great deal that you may not want to pass up.
On this note, it is important to do a proper inspection to make sure the deal on the home isn’t related to undisclosed issues that could be costly in the future.
It is your dream home or location
Some buyers are patient, analytical, and rational. They wait for the best time to buy, and only do so after months or even years of processing through their options.
On the other hand, there are those who are willing to buy whenever or wherever as long as it’s their desired home or location regardless of price or timing. Especially if this home or location is exclusive, it could be almost impossible to secure the home unless you put in an offer immediately when a listing goes up for sale.
Depending on the importance of that home, you may just have to purchase before selling if the opportunity arises.
How can I save money if I decide to buy a new home before selling my current one?
Buying a new home before selling your current home can be costly as it can result in double the payments. Budgeting for one set of utilities, a mortgage, home insurance and more can be tough — but two can seem almost impossible.
One option to help offset some of the financial pressure of paying two sets of bills can be to consider renting out one of the houses with a short-term lease until your old property is sold. If your property is eligible, you could also post it on AirBnB so you have flexibility with the duration of the rental(s). Either way, both options could help offset some of the expenses by adding another temporary source of income.
Another option to lessen the financial burden of buying a new home while trying to sell your current house would be to look for a realtor that offers a home buyer refund. With this type of program, your realtor will refund part of their commission back to you. Some programs will refund the money as a closing cost credit while others will give you a check for the amount at closing. Most homebuyers are unaware of this benefit, but it can help you save a ton of money on the home you were already going to purchase in the first place.
Conclusion
When it comes to buying a new home before selling your existing one, there are various financing options you can explore. For example, a home equity loan or home equity line of credit can be used to fund your down payment or cover your moving expenses. Bridge loans and short-term loans are other possibilities, which can be secured against your current home's equity. Before committing to any financing option, however, it's essential to consider your debt-to-income ratio and closing costs to ensure you can afford both mortgage payments simultaneously.
Working with a local real estate agent can be a significant asset when navigating the competitive market of buying and selling a home. They can offer insight into your local housing market and help you find temporary housing if needed. Additionally, a trusted mortgage lender can guide you through the process of securing a new mortgage or cash out refinance to help fund your new home before selling your existing one. However, it's crucial to weigh the costs and benefits of each option before deciding which is right for you.
In conclusion, buying a new home before selling your existing one can be a smart decision, but it's essential to consider all of your financing options and consult with a trusted real estate agent and mortgage lender. With careful planning and financial guidance, you can successfully navigate the process and secure the perfect home without compromising your current home's equity or retirement account. Whether you choose to use a bridge loan, second mortgage, or short-term rental, make sure to weigh the costs and benefits and proceed with caution to ensure you make a sound financial decision.
