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Selling Your Home and Buying Another

If you plan to sell your home and buy another, which should you do first? If you sell first, you'll be under time pressure to find another house quickly -- and may end up settling for less than you wanted, or overpaying.  But if you buy first, you'll have to scramble to sell your old house -- a particular problem if you need to get top dollar on your current home in order to make the down payment on the new one.  The answer to this question depends on a number of variables specific to your situation.  Whether you can afford to buy first and can financially manage two concurrent mortgage payments will most likely answer this question for you.

There are three (3) main options when selling one home and buying another:

  1. Sell then buy

    Most often, the best and only option. By selling first, you accomplish several things:
    • You know approximately how much you will net from your home to use as a down payment on your next home.
    • You have more control during your sale because you do not have to move on a specific date.
    • If your buyer can not close on time, your purchase, and possibly your deposits could be at risk.

  2. Buy then sell

    We hear it all the time, "I don't want to sell unless I know I have found my dream home first".   The last time you bought, it took you a year to find the home of your dreams.   While people buy and sell in this order all time, there are inherent risks involved in buying first and then selling.
    • You lock yourself into a purchase price without knowing how much your home will sell for.
    • You put yourself in a position of desperation when selling your home because you have to meet the deadlines for your purchases, often times resulting in a lower sale price.
    • In order to sell it quickly, you might have to list your home below market.
    • If you need the proceeds from your sale, there is no guarantee you can buy because if your home does not sell, then you still can not buy.
    • Most sellers will not accept an offer with a contingency to sell your home.

  3. Bridge Loan

    Recent changes in lending laws have made this option less feasible.   Most lenders these days will not allow you to rent your current home and use the equity in that home to purchase another home.   However, you may already have or be able to obtain funding to use as a down payment while at the same time, qualifying to carry both mortgages.   While this is the least likely scenario of the three, it may allow you to buy first and then sell your home while still maintaining control and not having to settle for a lower price.

    There is a very careful planning process you must use to both sell and buy a house.   Proper planning will help you be as successful and stress-free as possible.