By Wendy Volk
The “For Sale” sign caught Cameron’s attention. But it was the handsome home behind it that warranted a change of plans. Less than 100 yards away stood the physical embodiment of his dream home. It was all there: the fieldstone and clapboard exterior, the oversized windows, the beautifully crafted dry wall that hemmed in the property. This Sunday drive brought home for Cameron a dilemma debated by the vast majority of repeat homebuyers: Do I buy first or sell first?
Of course, the ideal scenario would be to buy and sell simultaneously. But such timing is never guaranteed. Most homebuyers will need to decide to buy a home then sell their current home or sell their current home then look for a new home. If you’re contemplating a move, consider the pros and cons of each strategy.
Buying a home first can have its advantages, especially if the home is that special find that may happen only once in a lifetime. But to get the property you want, you will need to know how much equity you’ll need out of your present home, and have an established sale target date. If your home doesn’t sell by the time you close, you could consider the option of renting it to hold out for the best offer.
On the downside, you could end up with two houses. To pursue a buy-first scenario, many people use their home equity line of credit as a “bridge” or “swing” loan to provide for the new down payment. However, to qualify, homeowners generally need a sizeable income. Even if you qualify, the stress of owing on three mortgages (the old mortgage, the bridge loan and the new home mortgage) might force you to sell your home at a price lower than you hoped. Keep in mind that market conditions change. In the end, you don’t know how much you’ll get for your present home.
The less stressful scenario calls for selling your home first. It’s easy to understand why: you know just how much you can spend on a new home; you avoid carrying three mortgages; and you won’t require a home-sale contingency, which may make negotiations easier. The new owners may agree to a long closing or a rent-back option so you can take your time, look around, and buy the house that’s just right for you.
It’s worth noting a few disadvantages to selling your home first. You may feel great pressure to find something fast and even settle for a less-than-ideal home. You may require interim housing, which could be very stressful if you have to stay with family or friends for an extended period. Should you decide to rent, it may be difficult to find suitable housing, especially if you have pets. In either case, furniture would have to be moved twice and possibly stored long term. If your house hunting efforts are focused on your old community, selling first may also involve paying tuition to the former school district so your child can continue attending school there.
Buy first or sell first. How can Cameron and you choose between the options? First, assess your financial condition. Is it healthy enough to withstand a buy-first scenario? How well do you handle stress? Do you have the resources to manage three mortgages and the added responsibility (as a landlord) that comes with renters? If you sell first, can you adjust to interim accommodations? Would they be practical for the long term?
These are all things you’ll need to consider. But you don’t have to do it alone. A real estate professional can offer expert assistance to ensure a smooth transition.