When planning your next step in the property market, there are two important questions that you should consider: Should you buy your new home before selling your current one? OR– Should you sell first and then buy?
Each option has specific advantages and potential drawbacks, and the best choice often depends on your current situation. Let’s hash it out in this article.
Buying First: The Benefits and Challenges
Finding the right property before your current home has sold can be tempting, and for many, buying first offers clear advantages. But like any decision, especially when it comes to milestone and high-investment purchases like real estate, there are pros and cons to this. Buying first offers the security of an immediate move-in and a more relaxed transition, but it’s not without risks. Weighing the benefits and drawbacks will help ensure that if you decide to buy first, you’re fully prepared to manage the financial and logistical demands that come with it.
Advantages of Buying First
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Immediate Move-in: When you purchase your new home before selling, there’s no scramble for temporary housing. Moving directly from one home to the next eliminates the inconvenience of packing, unpacking, and the costs associated with interim housing options like rentals, storage units, or extended stays with family. This approach means you can sidestep the hassle and focus on settling into your new space.
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Ease of Transition: Having your next home secured gives you full control over your moving timeline, letting you take a more organized and less hurried approach to the process. You can pack at your own pace, arrange for renovations or touch-ups in your new home if needed, and gradually ease into your next chapter without the pressure of a pending sale.
Potential Drawbacks of Buying First
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Financial Overlap: Taking on two properties at once means balancing two mortgage payments, which can strain finances quickly. This situation may require additional resources, whether dipping into savings, liquidating investments, or securing a bridge loan to help cover expenses while waiting for the sale of your first home. Bridge loans provide temporary financial relief by covering the purchase of a new home until your existing one sells, but they come with their own costs and interest rates, which can add up.
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Selling Pressure: Owning two homes can create urgency to sell the first property quickly, which may affect your negotiation power. In a rush to sell, you might find yourself accepting a lower offer than expected or agreeing to concessions you wouldn’t normally consider. This potential loss can impact the financial advantage of your new home purchase, so it’s crucial to weigh how quickly you’re comfortable moving your first property off the market.
Selling First: The Pros and Cons
Choosing to sell your current home before purchasing your next one can bring peace of mind financially, but it also presents unique logistical and practical challenges. Opting to sell first can provide financial peace and a clearer budget for your next move, but it requires readiness for potential disruptions, like temporary housing. By understanding the benefits and trade-offs, you’ll be better equipped to decide if selling first aligns with your priorities and timeline.
Advantages of Selling First
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Financial Simplicity: Selling your current home first removes the complexity of juggling two mortgage payments and makes it easier to calculate exactly how much you have available for your next purchase. With your finances clear, you can determine a realistic budget, focus on homes within your range, and streamline the process, which can help avoid last-minute financial surprises.
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Stronger Buying Position: Once your home is sold and you have the proceeds in hand, you’re in a stronger position when negotiating for your next property. In a competitive market, having cash available and no sale contingency can make your offer more appealing to sellers. This advantage can be particularly valuable if you’re bidding on a popular property, as sellers are often more inclined to work with buyers who are financially prepared to close the deal quickly.
Potential Drawbacks of Selling First
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Temporary Housing Needs: Selling before buying can leave you in a situation where you need to secure temporary living arrangements if you haven’t found your next home. This might mean renting an apartment, staying with friends or family, or using a short-term rental, all of which can add costs and logistical demands to the move. Additionally, finding a storage solution for your belongings may be necessary, adding another layer of coordination and expense.
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Pressure to Purchase: After selling your home, the need to buy a new one can create a sense of urgency, especially if you’re in temporary housing. This pressure to find a new place quickly may lead to a rushed decision, where you settle for a property that doesn’t fully meet your needs or long-term goals. To avoid this, it’s important to weigh how much urgency you’re comfortable with and to have a backup plan if your ideal home doesn’t appear as soon as you’d like.
Key Factors to Consider
Carefully weighing these factors can help determine which option aligns with your needs:
- Current Market Conditions:
In a seller’s market, where demand for homes is high, selling first can work to your advantage. On the flipside, a buyer’s market, with an abundance of available properties, might make buying first a better choice.
- Financial Position:
Evaluate whether you’re comfortable managing two mortgages temporarily or if selling first would allow you a more conservative approach. Selling first can simplify finances, while buying first provides more control over your move.
- Comfort with Risk:
If the financial overlap of owning two homes or the urgency of purchasing under a deadline creates concern, selling first may offer peace of mind. On the other hand, if you’re comfortable with some financial overlap, buying first can ensure you have time to find the right property.
Alternatives to Consider
If buying or selling first doesn’t feel like a great fit, other options might make the transition easier.
Bridge Loans
A bridge loan is a short-term loan designed to help you buy a new home before you’ve sold your current one. Here’s how it works:
- How a Bridge Loan Helps: Let’s say you find the perfect new home, but your current one hasn’t sold yet. A bridge loan provides you with temporary funds to cover the down payment or even the entire cost of your new property while waiting for your old home to sell. It’s essentially a way to “bridge” the time and financial gap between owning two properties.
- How to Pay it Back: Once your current home sells, you can use the proceeds from that sale to pay off the bridge loan. Keep in mind that bridge loans typically come with higher interest rates than a standard mortgage, and you may need to start repaying it immediately. However, it offers the flexibility of buying first without immediately worrying about selling.
- Who Might Benefit from a Bridge Loan: This option is helpful for those who need a bit of breathing room financially but are confident they can sell their home soon. It provides the flexibility to buy first without the rush to sell, but be mindful of the interest costs and repayment timeline.
Contingency Offers
A contingency offer means you can make an offer to buy a new home, but it’s “contingent” on selling your current one first. Here’s what that involves:
- How a Contingency Offer Works: When you make a contingency offer, you’re telling the seller that your purchase depends on selling your current home. This way, you won’t be left owning two homes, and you won’t need extra financing like a bridge loan. If your home doesn’t sell in time, the contingency gives you the option to cancel the purchase without penalty.
- Challenges with Contingency Offers: While a contingency offer can protect you from financial overlap, it can also be a tough sell in a competitive market. Sellers often prefer buyers who can close quickly and without conditions, so your offer might be less attractive compared to those without contingencies. In a slower market, though, sellers might be more open to contingency offers if they don’t have other offers lined up.
- Who Might Benefit from a Contingency Offer: If you’re cautious about taking on two properties at once, a contingency offer could be a good solution. It provides a safety net by linking your new home purchase to the sale of your current one, so you’re not financially stretched. Just keep in mind that in a hot market, it might be harder to get sellers to agree.
Ultimately, deciding between buying or selling first—or using one of these alternatives will depend on the housing market, your financial situation, and how comfortable you are with taking on certain risks. Always take all these factors into consideration before making a decision. And if you need help understanding your options, we’re here to help. Book a call with us today.
