Should You Sell Your Home First or Buy a New One First?
By Sadiya Anjum
So what does one do when they want to buy a new home but have to sell their old one: buy first? or sell first? It is a classic dilemma that most people moving up find themselves in. Unfortunately there is no ideal solution; it all comes down to each personís individual situation. You can try to time both simultaneously but you can hardly count on the odds for this to happen successfully.
You should first determine if you can handle the pressure of owning two homes. So you buy first and then sell the other one. But before you even start looking at homes or put your home up for sale, you should approach your lender to analyze your financial situation. Finance becomes the number one priority in this scenario. A lender will be able to guide you and help you find a suitable option.
But you must first know the various advantages and disadvantages of selling or buying first. If you buy a home first, then you will have to deal with the sale of your old home, handle two mortgage payments and produce cash for down payment for the new home. If you are financially capable of handling two mortgages, there are several loan options open to you.
Your second mortgage can be an interest only mortgage or an adjustable rate mortgage. Once you sell your old home, you can easily refinance or recast the existing mortgage. But before you choose any of these options make sure that you can easily refinance or recast without any difficulties such as a prepayment penalty. You may also consider a bridging loan. A bridging loan is a short term loan which can be repaid once you sell your old home. However the interest charged may be relatively high.
As for the down payment, if you have liquid savings then you are safe. Alternatively you can obtain a Home Equity Line Of Credit (HELOC) on your old home. This revolving line of credit will give you the chance to access any amount you want up to the credit limit. But a HELOC will have to be taken out much earlier as a lender may not approve a HELOC if you are about to sell your home.
On the other hand, some people cannot afford two mortgage payments. In this case selling will have to be done first. Selling first is what is recommended most of the time. It is less stressful and you can settle for a price that you will be happy with instead of rushing through the process. But you will have to move twice and you may have to consider your kidsí schooling, pets etc.
You can go to a lender to check for the various options open to you. But start preparing your home for sale and list it. Most importantly, arrange for temporary accommodation. You will have to consider housing for your family, boarding for your pets and storage options for your belongings. Meanwhile keep an eye out on any new homes on the market. As soon as you find a buyer and open escrow, you can get a pre-approval and start shopping for a new home.
Another option is to consider contingency clauses in your contract sale when you find your dream home. However there are many problems associated with this. Firstly, the seller may not accept your offer if you have not been pre-approved. Secondly, sellers would not want to accept an offer if there is a contingency regarding the sale of another home. This may only be possible if the home is already in escrow. Problems arise when closing dates clash especially since people tend to underestimate the time it may take to close on a transaction. Additionally, you may not be able to negotiate well on your first home. You may even be pushed to settle for a lower price.
There really is no right answer and the solution open to you may not always be the best. But you will have to take control and take a dive in one direction or the other. If you are lucky enough (and many people have been before), you can close on both homes within a matter of few hours or days.
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