Buying a home can be difficult, but try selling your home and buying another at the same time. Two major life events at once—talk about stress! But it’s a situation that most homeowners will face at some point in their lives. So which comes first—the sale or the purchase?
In a perfect world, most buyers would prefer to sell their home first, then immediately use the equity in that home for a down payment on a new one. It certainly simplifies financing, but in reality, it is hard to pull off simultaneously. Closings can be delayed, and deals can fall through. When you sell before you buy, there is less financial risk, but more logistical hurdles. Where will you live if the house you are selling closes before you are able to complete the purchase of the new one?
But buy before you sell? You will certainly have someplace to send your furniture, but you could get stuck paying two mortgages…for a very long time. That is, if you can find a lender to finance that purchase in the first place.
If it sounds like a catch-22, it is. But it’s far from impossible! I have successfully helped clients buy and sell (or sell and buy) throughout my 17 years as a realtor, and I’ve learned a few strategies along the way that help make the whole process go smoothly.
Know your financials
It’s a rare client who is able to buy a new home with cash and sell the old home at leisure. That means you will be dealing with financing, and the first step here is to have a good grasp of your financial picture. Know your credit score, and clean up any discrepancies that may be lowering your credit. Look at your debt-to-income ratio. Build a relationship with a lender, and get prequalified for a mortgage. Assess whether you can swing two mortgage payments at once for a few months.
Know the market
This is where I come in. In a buyer’s market, with falling house prices and lots of inventory, selling first may make the most sense. The last thing sellers want is to be paying interest costs on two loans. To help speed up the process, I work with my clients on paring down belongings and staging their home so that it will appeal to the widest range of buyers possible. I also suggest they do any quick fixes—taking care of that toilet that has run off and on over the last year—that may come up during an inspection and possibly delay the process unnecessarily.
In a seller’s market, buying a home first might be the best option, as your property would likely be sold more quickly. Sellers may have more power when it comes time to negotiate a timeline that is favorable to them, as buyers are generally more willing to accommodate sellers’ needs when inventory is low.
No matter which side of the transaction the market seems to be favoring, pricing the home right for market conditions is vital. I stay current on citywide statistics, changing local conditions, and neighborhood inventory to help my clients set a price that is competitive.
Don’t rely on timing
Closings get delayed. Buyers might have difficulty securing a mortgage, or a home inspection might bring to light issues that will need to be fixed. My clients are only part of the equation, and I help them prepare for setbacks. Preemptive planning may include contingency clauses, renting back the home after sale, extending the closing timeline on the purchase, or using a bridge loan to cover expenses.
Check back next week as I discuss the pros and cons of these preemptive planning strategies.