Buying and Selling: What Should Happen First?
At some point, you may begin thinking about buying a different home – perhaps your family is growing, you’re looking for a better layout, or maybe you’re even planning to relocate to a different area. No matter what your reason for moving, you may be wondering how to handle selling your current home while purchasing a new one. Do you sell first and then buy… buy first and then sell… or both at the same time? There’s certainly not one right answer, but we can help you decide by sharing the pros and cons of these options.
Pros and cons of buying first
Maybe you found a home that caught your eye and you think it’s meant to be, but you haven’t even thought about getting your current home sale-ready. Buying a new home before selling yours does have its perks, but you should also consider the reasons why it may not always be ideal.
Pro: find your ideal home
When you buy a new home before you sell your current one, chances are it’s because you found a gem of a house and didn’t want to let it go. A big perk of buying first means you have time to search for your dream home and get exactly what you want without feeling rushed into a buying decision.
Pro: know where you'll be living
If you’re the type who needs a plan for everything, you’ll probably be relieved to be able to move directly into your new home from your current one. On the contrary, if you sold your current home first, you’d likely have to live in temporary housing while you find a new house. This is a clear advantage of buying first.
Pro: take your time moving
Buying first means you can take all the time you need to move from your old house to your new one. This also gives you time to tackle any improvements or updates you want to make on your old home before putting it on the market.
Con: juggling two mortgages
In an ideal world, you’d be able to buy a home, list your current home and have it sell within a month to avoid paying two mortgages. What happens if you purchase a new home but then your current home sits on the market for a while? Will you be prepared to shell out two separate mortgage payments each month until your home sells? If this doesn’t sound ideal, you may want to pump the brakes on buying before selling your existing home.
Con: higher debt-to-income ratio
If you did want to buy before selling your current home, you should know that your income would need to support both mortgages. If you are struggling to qualify for a new mortgage without factoring in your current home’s mortgage payment, you’ll likely find it hard to qualify with both mortgages in your name due to a higher debt-to-income (DTI) ratio. It may be necessary for you to sell first in order to lower your DTI and qualify for a new mortgage.
Pros and cons of selling first
Just like buying first, selling your current home first also has its advantages and disadvantages. In this instance, you may find the advantages worth it, since you’ll lower your DTI and free up some money by selling your home before you start the process of buying a new one.
Pro: better negotiating position
In a hot real estate market, there is often significant competition when placing an offer on a house. You’ll find that selling your home first and having cash on hand can be advantageous when it comes to negotiating with a seller, especially in a multiple-offer scenario.
Pro: know how much you can afford
Selling your current home first means you will know exactly how much you can afford when buying a new home. It also provides you with more cash on hand to put toward the down payment on your new home. And if you’re able to put a full 20% down, depending on your loan program you’ll be able to avoid paying mortgage insurance each month. This can add up to a big savings over the life of your loan.
Pro: have fewer expensive
Unloading one home before buying another means you won’t be paying utilities for two homes. If it were only for a month or so, you may not fork over much money, but if it takes several months for your old home to sell, having two utility bills can significantly impact your monthly expenditures.
Con: finding temporary housing
While selling your old home first has its perks, the hassle of finding somewhere to live while you search for a new home can be cumbersome. When we moved to a different state for my husband’s new job, we started the home search but needed to have somewhere to live immediately. We had to sign a three-month lease in order to move into a townhouse, even though we knew we would only live there a month or two. We ended up having to juggle the last month’s townhouse rent with our first mortgage payment. Not ideal, but sometimes necessary in order to make it work.
Con: rushing to buy a new home
If you sold your current home, you may feel a sense of panic and a need to find a new home right away. A completely normal feeling – but it can lead you into a rushed decision and a feeling of resentment down the road if you failed to wait for the right house to come along. If you’re in this situation, the best thing you can do is take a deep breath and remember to take the time you need to find your dream home. Buying a house is often the biggest investment you’ll make in your life, so do yourself a favor and don’t rush into your decision.
A combination of the two
We’ve discussed the pros and cons of buying first and selling first, but did you know there’s also the option to do both simultaneously? You can make a contingent offer, meaning your offer is dependent on your current home selling. The downside of this option is that your offer will likely be less appealing to a seller in a competitive market.
If you have great credit, you may be able to take a home equity line of credit (HELOC) to cover the cost to purchase a new home while still paying the mortgage on your old home. Some lenders also offer a bridge loan, which is basically a short-term loan that helps you cover the interval between buying and selling.
As you can see, choosing whether to buy or sell first depends upon many factors, from finances to logistics and more. Think through your decision carefully and make the choice that will be best for you and your family. You can also get in touch with a mortgage banker to discuss the best option for your situation.