In an ideal world, the process of selling your old home would seamlessly align with the purchase of your new dream home. But as anyone who's been through the real estate market knows, things don't always fall into place perfectly. Sometimes, you find yourself selling your existing home and having to vacate it before finding a new one. This situation can lead to additional expenses and the inconvenience of temporary housing. So, you might be wondering: Is it a good idea to buy a home first before selling my old one? Let's dive into the pros and cons and navigate this complex real estate choreography.
Advantages of Buying a Home Before Selling:
You Have a Place to Go: If your old home sells quickly, you won't find yourself without a roof over your head. You can move into your new house on your terms, making the transition smoother.
Avoid Temporary Housing Expenses: With your new home ready, you can skip the costs of temporary housing or storage for your furniture, saving you thousands of dollars.
Act Fast in a Competitive Market: In today's competitive real estate market, desirable properties can sell within days of listing. Buying first allows you to seize opportunities without delay.
No Need to Live in a Show-Ready House: Keeping your existing home clean and show-ready for potential buyers can be stressful, especially with pets or children. Buying a new home means you won't have to deal with this hassle.
Drawbacks of Buying a Home Before Selling:
Financial Considerations: Financing a second home can be challenging. Most people rely on the proceeds from their existing home for the down payment on their new one. Without substantial savings or easily liquidated investments, you'll need to explore how to finance the purchase.
Managing Two Mortgages: If you secure a second mortgage, you'll be responsible for two monthly house payments, which can strain your budget, even temporarily. You'll also need to cover additional expenses like utilities and property taxes for both homes.
Skepticism from Sellers: Sellers of the home you want to buy may be wary of your offer, given the uncertainty of selling your current property. They might worry about your ability to afford the purchase or potential delays in the process.
Steps to Buying a Home Before Selling:
If you decide that buying a home before selling your old one is the right choice, here are some steps to consider:
Check Your Eligibility for a Second Mortgage: Research lenders and explore your financing options, including obtaining preapproval for a mortgage to determine your loan size.
Include a Sales Contingency in Your Contract: Consider adding a sales contingency to your purchase agreement, indicating that your new home's purchase is contingent upon selling your old one.
Explore Bridge Loans: A bridge loan can provide short-term financing to bridge the gap between purchasing your new home and selling the old one. It allows you to make a non-contingent offer on your new home.
Consider a HELOC or Home Equity Loan: Use the equity in your old home to finance the down payment on your new one. Repayment will be required once your old home sells.
Utilize Savings: While not always advisable, you can tap into savings or retirement accounts, such as a 401(k) loan or Roth IRA withdrawal, to finance your new home. Be mindful of potential penalties and tax implications.
Negotiate a Delayed Closing: If your current home is close to selling, request a delayed closing from the sellers of your new home to better align the two transactions.
Alternatives to Buying Before Selling:
If buying a home before selling your old one seems too complex, consider these alternatives:
Rent Out Your Old Home: Instead of selling, consider renting your old home to offset costs.
Sell to a Real Estate Brokerage: Some brokerages offer cash-for-homes services, providing funds for your new home purchase.
Wait to Buy: Delay purchasing a new home until your old one is sold. This avoids the financial burden of managing two mortgages.
Remember, each situation is unique, and the best approach depends on your financial circumstances and the local real estate market. Consult with a real estate expert to help you make the right decision for your specific needs.