So you’re ready to move, but should you buy or sell first?
It’s time. You love the house you’re in now, but it’s time to upgrade. Your family’s getting bigger and you need more space, or maybe you’ve got an awesome job opportunity somewhere else. No matter what’s causing you to consider moving, there’s always going to be that one tricky question. Should I buy a new home, or sell this one first? It’s a common problem. Managing the sale and purchase of two homes at once takes a lot of planning, and honestly some good luck. Unless everything turns out perfectly, there’s likely going to be a time in the process where you either don’t own any houses, or you own two at once. So which one is better? Managing the sale and purchase of two homes at once takes a lot of planning, and honestly some good luck.
FEWER MORTGAGE PAYMENTS
Why should I sell my home first?
Well for one, you won’t be responsible for two mortgages at once. That relieves some of the pressure to lower the price of your home or sell it quicker than you wanted to. Selling your home allows you to access the equity you’ve built, which can come in handy when you’re looking for a place to stay or store your things in the meantime. You can even put it toward a down payment on your new home.
Most of us don’t have the money to make a down payment on a new house or the income to keep up with two mortgage payments indefinitely, so selling first may seem like the obvious choice. But even though you won’t be paying two mortgages, you’ll still be spending your money on the things we just mentioned.
BUNK WITH FAMILY
Finding a place to stay and store your things can be expensive. If you have friends or family you could stay with for an extended period of time, that’s probably your best bet. The downside to this is you’ll probably have to move twice and it puts pressure on you to find a new house as soon as possible. But if those aren’t problems for you, selling first may be in your best interest.
If you want to move directly into your new home without a pit stop in between, you’re going to want to buy first. It may not seem ideal unless you’re sitting on a mountain of cash, but there are ways to make it work, even if your bank account is a little more down to earth.
Your best bet if you’re trying to buy before you sell is to make a contingent offer on your new home. What this means is that you’ll enter into a contract to buy the new home if and when you sell your current one. The contract will have an expiration date, so you can’t promise to buy your new home then take your sweet time selling your old one.
Sounds good though, right? Well, there’s a downside. If the house you’re looking to buy is in high demand, a contingent offer probably won’t be considered too seriously. A seller is already worried about selling their own home, and with a contingent offer, you’re asking them to worry about you selling yours too. Contingent offers also take away most of your ability to negotiate. The asking price will likely be the floor, not the ceiling, of your offer. It’s important to talk to your real estate agent about whether a contingent offer makes sense in the market you’re looking to buy in.
BRIDGE LOANS AND HELOCS
If the conditions aren’t right for a contingent offer, all hope isn’t lost! Assuming you’ve built up some equity, you can use your current home to finance your next one. Bridge loans are short-term loans designed to help bridge the gap between buying and selling. You can get bridge loans to either pay off your existing mortgage and provide a down payment on your new home, or you can get one just for the down payment. Be careful though. Bridge loans are considered high-risk, so they’re harder to get and usually come with a higher interest rate.
These days, most people opt for a HELOC or home equity line of credit to finance a purchase before a sale. In essence, it allows you to borrow against the equity you have in your home. You can draw money out as you need it to make your down payment and cover any extra mortgage you have to pay. It’s another short-term solution, but you may find it preferable to a bridge loan.
The bottom line here is you have options. Whichever one works for you is probably dependent on your financial situation and the conditions of the local market. In a buyer’s market, you’ll have more leverage as a buyer so a contingent offer may be the way to go. In a seller’s market, it may be better to sell your home first. If you’re financially comfortable enough, either option could work for you, it just depends on your preference. Be sure to speak with a financial adviser before you make your final decision, though!
No matter which route you decide to take, there’s a good chance the process will stress you out if you’re not careful. Choosing the right lender and real estate agent can go a long way. At Heritage Home Loans, we take pride in simplifying the process and giving our clients peace of mind throughout. Let us help you manage your next move!
Do you have any buying or selling tips for people who are looking to move? Share them with us on social media!
Article written by Khari Pressley and reprinted with permission from Cardinal Financial.