The latest homeowner's conundrum: buy first or sell first?
How to Decide Home Buying & Selling Order
New homeowners face many problems, but hot markets are tricky for those looking to move up. Buying a home can be difficult. House hunters must save for a down payment, may face bidding wars and even forgo conditions once considered staples of a home purchase offer, like financing or an inspection.
But those who already own a home and want to move into a bigger place or downsize can face a complicated process. They must also decide whether it's best to buy or sell first. The choice depends on the people, the house and the city, realtors say, though there are some constants that hold true for most situations. The decision to sell their home first and then buy, or buy then sell, can be a difficult one. If you're a homeowner who would like to sell one home and buy another, it's important to weigh all the factors. Knowing the advantages and disadvantages of each option can help you decide which one is right for you.
As a rule of thumb if it's a seller's market, then you need to be buying first. If it's a buyer's market, then you need to be selling first.
Benefits of Selling Your Home Before Buying a New One
Some homeowners choose to sell their home before purchasing another. While this does have its advantages, there are problems that can be associated with it as well.
Selling your house before buying a new one is the more practical solution for most people, but it’s not always the most convenient. Selling first is beneficial if you need to access your current home equity to buy your new home. However, selling first often requires temporary housing while buying your new house. From a real estate market standpoint, selling before buying makes the most sense for people who are selling in a buyers market. In this situation, you know the your current home may take longer to sell, and you probably don’t want to or can’t afford to pay for two homes for an extended period of time.
1. Avoid a rushed home sale
Selling first gives you the luxury of time. You can wait until you get an offer you’re satisfied with, without the pressure of knowing you already bought (or are in the process of buying) a new house. Once a property is purchased, most homeowners feel great pressure to sell their home quickly. Selling the house before buying the second house enables home buyers to take their time and accept the best offer instead of taking the first offer that comes along.
2. Make a stronger purchase offer
If you’re buying in a sellers market, making an offer contingent upon your own house selling might make your offer less desirable or competitive.
3. Know your sale profit
By selling your current home before you buy, you have the actual cash from your sale to apply to your next purchase. It’s difficult to estimate your earnings before closing because sellers often make concessions. When you know your profit, you can adjust your affordability and shop within budget.
4. Pay only one mortgage
Paying the mortgage on two homes can cause financial strain. At the very least, having an existing mortgage can make it hard to qualify for your new mortgage, as your monthly payment factors into your debt-to-income ratio. For many homeowners, the burden of paying two mortgages at one time is too great. Selling first and then buying makes it possible for the homeowner to pay only one mortgage at a time. This can help relieve financial pressure at a time when many homeowners feel great financial stress.
5. Stage your own home
With your belongings (or pared-down belongings) in place, you probably won’t need to hire a full-service stager to get your home ready for listing. Of course, you’ll still need to tidy up and declutter to showcase your home in its best light.
6. You Can Offer More Money Down When You Buy Later
After the first house is sold, home buyers may have a great deal of cash from the sale of their first home. This makes it easier to make a stronger purchase offer on the home they really want to buy.
7. You Know How Much Money You'll Have On Hand For Your Next Purchase
After the first house is sold, home buyers may have a great deal of cash from the sale of their first home. This makes it easier to make a stronger purchase offer on the home they really want to buy.
Many homeowners have a hard time deciding how to proceed with the purchase of a new house if they don't know what they can expect to make from the sale of their first home. Selling the house first enables homeowners to know how much money they can expect to make and thus how much home they can afford to buy. Knowing the sale profit also makes it easier to make moving decisions, like whether they can afford to hire a full-service moving company. Homeowners who aren't on a tight budget feel more flexibility to buy what they want to buy and pay for services that will help them when they sell their home first.
8. Staging With Your Own Furniture is Easier
Staging an empty home can be expensive. Homeowners who want to stage their home to make their house look attractive to buyers can use their own furniture to stage if they choose to sell their home first. Homeowners who choose to buy a house first and move into that house may need to rent furniture just to fill their empty house.
Tips for Selling a Home Before Buying
These tips can help make selling the house first a more feasible option with reduced stress.
- Research storage facilities in the area to find a location where furniture can be stored after the house sells.
- Research home rentals in the area to understand the price of renting a home for a short period of time while looking for a new home.
- Consider renting the home while it is empty to ease the burden of paying for two mortgages.
- Work with a real estate professional to make purchasing a house easier once the first house sells.
Negatives of Selling Your Home Before Buying a New One
Despite the reasons above, there are some reasons not to sell a house before buying a new house. Here's what homeowners need to know.
1. Living in Temporary Housing is Expensive
Temporary housing can be expensive, depending on whether the renter is paying by the day, the week, or the month. Temporary housing can be especially expensive if it's furnished. In addition, rental properties may require the renter to put down a large deposit, which they may not get back when move out time comes.
2. You May Rush the Purchasing Process
Once the first house is sold, most homeowners want to move into their new house as soon as possible — especially if they're not able to find a feasible rental home to live in while they're looking. This can make for a rushed home buying experience, which can lead to settling for the wrong house, or getting a house for a less than optimal price.
3. Moving Twice is a Burden
Once the house sells, the homeowner must move their furniture into a storage unit. After buying a new home, they must then move their stuff into their new home and out of their storage facility. Moving twice is a burden financially and in other ways. Moving twice can also be time-consuming.
Benefits of Buying a Home Before Selling Your Existing Home
Why buy a house before selling?
If you have the financial security to own two homes at once, then buying first is a convenient option that avoids multiple moves. However, the financial strain can cause you to rush through your home sale, possibly making more concessions than you would otherwise. From a real estate market standpoint, buying a second home before selling makes sense if you’re in a sellers market. In this situation, homes tend to sell more quickly, which means you won’t be carrying two mortgages for an extended period of time.
For some homeowners, the right choice is to buy a house before selling. Below are some benefits of buying a house first.
1. Avoid a rushed home purchase
Because you haven’t listed your home on the market yet, you can take your time searching for the right property. This can be especially helpful if you’re selling in a highly seasonal real estate market. If it takes a long time to find a home you like, you won’t have to spend an extended period of time in temporary housing. Purchasing the home first enables home buyers to take their time, find the right house for their own needs, and get the best deal possible. For home buyers who want to find their forever home, this could be the best option.
2. Only relocate once
Rather than moving into temporary housing and then again into your new home, you can fast-track that experience by moving directly into your new space and listing your home once you’re fully transitioned. Homeowners who move straight out of their old home and into their new home only have to relocate their furniture and personal items once. This makes it easier to save money on moving expenses and is also far more efficient. Relocating only once saves time.
3. Control your moving timeline
You can avoid the stress of trying to perfectly align a purchase and sale and instead give yourself enough time to organize, pack and move. Once the second home is purchased, the homeowner can take time to move their things out of their home. This makes the moving process less stressful and overall easier. Homeowners who are able to move out of their old house a bit at a time may also save on moving costs by avoiding hiring a large moving crew.
4. Secure the home you love
If you’ve been browsing the MLS for a while, or you already have an agent sending you listings, it’s possible you’ve already found a home you love. If you wait to sell your current home first, you may risk losing your dream home.
Negatives of Buying a New Home Before Selling Your Existing One
Buying a house without selling yours first isn’t for everyone, even if you can afford it. After all, nobody wants to foot the bill for two homes any longer than necessary. Depending on market conditions, it could take months before you’re able to sell. There can be significant downsides to buying a home first and maintaining two properties at the same time.
1. Buying First Rushes the Home Sale
When you’re making two mortgage payments each month, you might feel a sense of urgency to get your first home sold. Once the first home is purchased and moved into, the homeowner may feel the need to sell their old home quickly. This could lead the homeowner to accept the first offer that comes along, which could lead to a loss of profit. In addition, buyers who sense that the homeowner is very motivated may ask for more concessions before agreeing to buy the home.
2. Two Mortgages Can Be a Financial Burden
For many people, it doesn’t make financial sense to own two homes at once. You may need cash available for your down payment or to cover out-of-pocket expenses like moving and staging. And you’ll need a strong debt-to-income ratio to qualify for your new mortgage. This creates financial strain that can lead to stress. Homeowners who must pay for two mortgages at once may not be able to afford repairs/upgrades to their new home and may be vulnerable to other risks. Without adequate money to pay for unexpected big expenses, homeowners could eventually find themselves deep in debt. Since no homeowner can predict exactly when their first house will sell, this could lead to months of paying for two mortgages at once. The longer this goes on, the more the homeowner stands to lose.
3. You're Responsible for Maintenance on Both Homes
Maintaining a home can be expensive, and maintaining two homes can be doubly expensive. Homeowners who have two houses at once will find themselves paying utilities and other maintenance costs for both homes at the same time.
Tips For Buying First
- Apply for a bridge loan or HELOC: If you’re interested in buying before selling but need to maximize cash flow, you could take out a temporary bridge loan or HELOC to pay for your new down payment.
- Consider leasing your home: If money gets tight, you can always rent your home and wait for market conditions to improve.
Homeowners who would like to buy their home first and then sell should work with the best real estate agent they can find. Their real estate agent can help them sell their home quickly and efficiently to ensure their costs are kept to a minimum.
Take professional advice - Choose a great Realtor
Whether you're selling a house first and then buying, or buying a house and then selling, you should work with your real estate professional to make the home selling and buying process as easy as possible. If you're going to be selling a home and then buying a home sometime in the next six months, contact an experienced real estate professional today.
