If you’re planning on selling your home and buying another, it’s a good idea to list your current home before you make an offer on another property. Then, when you sell your home, you have a couple of options. You could rent living accommodations until you find the home you want to buy. Or, if you have family or friends you could stay with over the short term, you could become more aggressive in your search for a new home. Whatever approach you take, it’s almost always best to list before you buy.
Why Should I Sell First and Buy Later?
It only makes sense. Very few people can afford to carry two mortgages at the same time. Even if you’re fortunate enough to be able to do it, it’s still a bad idea. What happens if there’s a slump in the market? You could end up getting considerably less for your home than you expected. Even if you have deeper pockets than most and can afford to take a loss, not many lenders are willing to join you in jumping aboard what could be a leaky ship.
That’s Exactly the Problem – I Can’t Afford Two Mortgages
If your house is likely to be on the market for a while, but you’ve found your new dream home and you’re determined not to take a chance on losing it, you could still buy. This is where the possibility of renting out your current home comes into play. This earns you the income you need to cover both mortgages. However, it’s not without its downside. Very few people want to rent a home that could be sold out from under them at any time. In fact, some tenants might actually sabotage you. It’s hard to sell a messy house; harder still to sell a house when no one is there at the time a buyer comes over for a showing. Some tenants might take things a step beyond just messing things up and actually cause damage. Then you’re on the hook for repairs, and still unable to sell your house.
If you can rent to someone you know and trust, of course none of this is a problem.
Is There Anything Else I Should Consider?
You could include a contingency clause in your purchase offer. This used to be known as a “weasel clause.” It means that if you’ve found a home you want to buy, you can agree with the seller to purchase it once you’ve sold your own home. Obviously, this only works in a buyer’s market. The seller has the right to accept other offers. If another buyer comes into the picture before you’ve sold your home, you get a brief period of time (usually two to three days) to drop the “weasel” clause and finalize the sale.
You could also try to get your lender to agree to a “bridge” loan. This would mean that you wouldn’t begin making payments on the mortgage on your new home until after your existing home sells. Again, it’s obvious who gains the advantage in this scenario – this works best in a seller’s market.
The Final Decision
It is possible to buy first and sell later. Consider your financial situation carefully, and pay close attention to the market when making your decision.