POV: You're a homeowner thinking about downsizing, upsizing, or relocating to a new area. Your biggest dilemma now? It’s probably this: whether to sell your current home before buying a new one, or buy first and then sell.
It's a common situation for many homeowners who are on both sides of a home sale transaction. Selling first can provide financial certainty, while purchasing first means you don’t miss out on your dream home in a competitive market. Both options come with their pros and cons. However, in this blog post, we’ll break down the benefits and drawbacks of buying a new home before selling, so you can understand what you’re signing up for if you find this approach appealing.
This strategy is not uncommon in the real estate world, especially for homeowners who find their dream home before they’ve managed to sell their existing one. However, as with any decision, it requires careful planning, understanding of your current housing market, and a full assessment and consideration of your financial situation.
Benefits
Buying first means you can move into your new home seamlessly, without the need to set up temporary living arrangements. Finding short-term housing can be a hassle, not to mention costly and stressful. By buying before selling, you won't need to spend money on a double move, nor pay for temporary housing costs, including deposits and utilities.
You can transition directly into your new space whenever it's convenient for you. You won’t be living in a house that needs to be ready at all times for showings to potential buyers. This can be especially helpful for long-distance moves or families with children, or individuals with specific needs.
One of the biggest advantages of buying before selling is that you can take your time exploring your options and house-hunting at your own pace, without the pressure of needing to move out quickly. It will also allow you to make any necessary repairs or renovations to your current home to potentially increase its market value.
Drawbacks
Owning two properties simultaneously means you will be holding two mortgages at once, which can be financially challenging. It can stretch your finances, especially if your old home doesn't sell as quickly as you anticipated. It’s critical to have strong financial stability and do meticulous planning to ensure you can afford this situation.
Depending on your income and credit profile, it can be more difficult to secure financing for a new home when you already have one. Lenders may require higher income levels and better credit scores to mitigate their risk. And without the proceeds from your current home sale, your debt-to-income ratio could disqualify you from getting a second mortgage.
If you're shopping for a new home before selling your old one and need to include a home sale contingency in your purchase offer, some sellers may see your offer as less appealing. They might prefer offers from buyers without contingencies, thinking that your unsold home will impact your ability to follow through on your bid.
You may feel pressured to accept a lower offer for your old home just to sell it quickly since you're managing two mortgages at once. Or if the market shifts after you buy, your old home could sell for less than expected. Either of these scenarios can leave you with financial gaps that could affect your plans.
Buying Before Selling: The Road Less Traveled
Should you buy before you sell? Or go to the conventional selling first of your old home before buying a new one? The truth is this: there's no one-size-fits-all answer. The decision that will work best for you should be made based on a number of factors: your financial capacity, current market conditions, risk tolerance and flexibility, and personal timeline, among others. Should you decide to buy first, seek expert advice from a knowledgeable real estate agent to help you navigate this complicated journey. This way, you can create a plan that aligns with your personal needs and financial goals.
