Should you buy first or sell first when transitioning between homes?
Are you thinking of selling your current home and purchasing another? Whether you’re downsizing or upgrading, there are a few points I’d like to offer as guidance.
If you’re like most people, you’re probably wondering whether you should buy first or sell first. Today, I’ll be going over each option as well as three ways to approach each route.
- Buying your new home first. If you decide to buy your new home first, the upside is that you have a place to live after you sell your current home. The downside is that you may feel rushed when selling your home. The three ways you can approach buying your new home first are:
- Rent out your current home. Your rental income could cover the mortgage on your new home. This allows you to pay down your equity without taking your mortgage out of pocket. The drawback is that you will have to find your down payment elsewhere since you haven’t sold your home outright. There are also a lot of responsibilities associated with being a landlord.
- Submit a contingent offer. A contingent offer refers to an offer that is contingent upon the sale of your home. Keep in mind that in a seller’s market, this kind of offer is less likely to be accepted.
- Use a HELOC or bridge loan program. HELOC stands for home equity line of credit. If you have a significant amount of equity in your property, the bank will allow you to take out a line of credit against this equity. This money can be used toward a home purchase. A bridge loan is a short-term loan from a bank that gives you the financing to purchase a replacement property. You’ll start paying this loan back once you make your purchase.
- Selling your current home first. If you decide to sell your home first, the upside is that what you earn from the sale will help you purchase your new home. The three ways you can approach selling your home first are:
- Find a rental property. This may be a good option because it gives you time to look at homes to ensure you find the right one. The disadvantage to this option is that your rent payments will prevent you from paying down the principal balance on your mortgage.
- Submit a contingent offer while your home is under contract. You can put your home on the market, accept an offer, and start writing offers on other properties. Being able to show that your current property will be closed on soon will make your offer more attractive to sellers.
- Ask for a rent-back. This is probably the most common strategy. While your home is listed, your agent can notify potential buyers that you’re looking for offers that will give you a one- to three-month rent-back period. This way you don’t have to take on additional loans, but still have time to find your replacement property.
If you have any other questions or would like more information, feel free to give me a call or send me an email. I look forward to hearing from you soon.