Homeowners can sell their properties with contingencies built into their contracts, stating that they must be able to buy a replacement house or the deal is off the table. They don't have to sell if they can't find a new home. Some people aren't comfortable with selling before buying, though, even with that safety net.
Looking for a new property before listing an existing home for sale takes some of the anxiety out of the situation. Of course, those homeowners now have pressure to sell their existing houses ASAP and try to close on both properties concurrently. It can be tricky, but it's not impossible.
Is buying first the right decision for you? Here are a few considerations.
- Deciding whether to sell your home before you buy a new one is a big decision and depends on several factors.
- Buying first and then selling is probably best if it's a seller's market. It also may be a good idea if there's a house you just can't pass up on buying.
- One of the tricky things about buying a home before you sell is that you need to qualify for two mortgages at once. But selling before buying means you may need to move twice.
- Talk to lenders and your real estate agent to find out which option makes the most sense for you.
The Type of Market
You may want to buy the new home first, then sell, if your current home is in a seller's market. A seller's market is when home inventory is low, so there's more competition among homebuyers.
Homes generally sell within days of hitting the market when inventory is reduced because there are so many buyers, so there's less risk involved with buying first and selling second.
If the home you're buying is also in a seller's market, keep in mind that few sellers will accept a contingent offer. For example, you might want to make your new home purchase contingent on your current home selling, but there's no reason for a home seller to accept that offer if they have other buyers waiting in the wings. The best route is not to put in that contingency, but that means you could be stuck owning two residences until your home sells.
You'll probably pay top dollar for your new home in a seller's market, especially if you end up bidding in a multiple offer situation.
The Home You're Buying
Sometimes, a home will come on the market at a price that's just too good to pass up. Perhaps the sellers are getting divorced or need money to pay medical bills or meet another emergency expense. In any event, they're extremely motivated to sell.
It makes sense to buy before you sell in this case because the money you'll save walking into the deal is worth making double payments until your home sells.
Or the home might be the only one you've seen that's a size you like in the school district you want to move to. In this case, it might be worth carrying two mortgage payments (if you have to) to get into the right home.
If the home you're buying is too good to pass up, you might want to be the first offer on the table before word spreads.
You Don't Want to Move Twice
Imagine this scenario: You close on the sale of your home on May 15, and then you start looking for a new property. You find it, and your closing date to purchase that property is August 15.
You're faced with renting for a couple of months or moving in with friends or relatives for a short while. Either way, you'll move once to your temporary quarters and again into your new home. You'll have to pay movers twice, and you'll probably have to pay for storage in the interim.
All this might not work out to a great deal of money spent, but you probably have better uses for that cash. And you might be tempted to settle for a somewhat less-than-perfect new home just to put the transition behind you and spend fewer weeks in your in-laws' guest room.
You Qualify to Buy Before Selling
One of the tricky things about buying a home before you sell is that you need to qualify for two mortgages at once. Not everyone has the income and debt-to-income ratio to make this work. If it's an option you're considering, talk to a lender sooner rather than later to see if you qualify for a new mortgage before you've sold your home and paid off the old one.
The Bottom Line
Buying your new home as you're selling your old one has its advantages. For example, you only have to move once. While it sounds ideal, not everyone will qualify or have the funds to pay two mortgages if your old home doesn't sell. Talk to lenders and your real estate agent to find out which option makes the most sense for you.