Do I Buy First or Sell First?
It’s not quite the chicken and the egg, but it’s close! It’s the classic dilemma for many homeowners as to whether they should buy or sell first. There is no right answer for everyone. It all depends on your specific circumstance as well as the current market condition in your area. Knowing what you are in for and how to coordinate the two aspects of your real estate journey will make the process much more manageable.
When trying to decide whether to buy or sell first, don’t be discouraged. There is hope for determining which course of action is best for you! The first step is to take a good look at your finances, your willingness to possibly move twice and the market conditions of where you are both buying and selling.
Should you SELL your house first?
Most homeowners believe that it is more prudent and less stressful to sell their existing home prior to purchasing their next one. Taking the pressure off needing to sell immediately, allows a homeowner to take their time, follow the steps of staging, professional photos and a strong marketing plan in order to help them sell for top dollar. This plan also gives you cash for a down payment and reduces the risk of having to juggle two mortgage payments at once. Plus, once your home is sold, you are in a better position to negotiate when buying your next home.
However, if you make an offer on a home contingent on the sale of your home, you may lose your negotiating leverage. In some instances may need to move twice to fill the gap time between the selling of your home and the purchase of our next one. This is likely to add a tremendous amount of pressure to find your next house quickly. Of course, there are always ways around this problem. First, you could look into short term or month to month apartment rentals. There is also the rent-back provision that would allow you to sell your home, close and then rent your home from the new buyers until you are ready to actually move out.
Or should you BUY your house first?
If you want to be assured of moving directly into your new home without the pit stop as a renter, you’ll have to purchase first. Unless you are sitting on a pile of cash, that may be difficult, if not impossible. But, there are ways around this. The risk of selling your home first, before you have a place to live, is that you’ll be under pressure to buy a new home before you close. In a competitive real estate market, the period between going under contract and closing may not be a realistic timeframe for you to find your dream home.
If you choose to purchase first, possibly the most appealing option from your standpoint is to make an offer “contingent” on the selling of your existing home. Meaning, that the new sellers understand you can only purchase when and if your current home sells. Be aware that the contract will include an expiration date, so you will need to bare that in mind and don’t dilly dally in getting your home sold!
Another option may be a bridge loan which would enable you to “bridge” the gap between selling and buying. You can either get a bridge loan to completely pay off your existing mortgage and provide a down payment on your new home or you can get one that simply provides your down payment. Beware; these are considered high-risk loans, so they come with higher interest rates than a typical mortgage loan.
An additional option is to use a HELOC (Home Equity Line of Credit) to finance a purchase before a sale. Essentially, this allows you to borrow against the equity in your home. You can draw money out as you need it to make your down payment and cover the extra mortgage. Note, most lenders will not offer you a HELOC if your existing property is already on the market.
The Bottom Line
There are plenty of options when it comes to simultaneously buying and selling property. The one that works best for you probably depends on current market conditions. In a buyer’s market you have more leverage on the buying-side of the deal so you may be able to make an offer to purchase contingent on the sale of our home. In a seller’s market you may be better able to negotiate a rent-back of your current home. In either case, be prepared for the stress that will accompany your real estate journey, and determine how you are going to deal with it. Wine, anyone?
– Melissa Lechak