Should I buy a home first or sell first?

We Love Kits
We Love Kits
Published on June 2, 2020

More than 71 percent of home sellers look at homes for sale while their current home is on the market according to a Zillow report. Looking back, 24 percent of them said they wished they would have started the selling process earlier.

Most of these home sellers ran up against a common problem: Should I buy first or sell first?

Let’s take a look at just some of what you should consider and a couple of solutions.

Current market conditions

In a seller’s market (when there are lots of buyers looking for homes but few homes available) you’ll most likely not have to worry about the home selling. But, once it does, you’ll be joining the ranks of all the other buyers, competing against one another for the few homes on the market.

For this reason, many home sellers choose to rent for a time after selling, until the market changes in their favor.

Others can’t stand the thought of having to pack up and move yet again. Determine your tolerance for this scenario.

Finances

If you don’t have a large cash reserve, you’ll need the equity in your current home to purchase your new one. This means you’ll have to either sell your current home before buying or choose from among the other options we outline below.

The two-house payments conundrum

Another major concern we hear from our listing clients is that they’re afraid that if one side of the deal concludes before the other, they’ll be faced with having to make two house payments.

If your budget can tolerate this eventuality, then you’ve nothing to worry about. It’s difficult to time this perfectly. I had to have a bridge loan for one of my purchases in the past, it allowed us room to manuever and negotiate the purchase of our next home without feeling too stressed. If not, read on.

Solutions to consider

Luckily, you have several remedies to choose from when faced with the “should I sell first or buy first” question.

Bridge Loan

A bridge loan is a short-term loan that provides instant cash flow. They’re typically only provided to borrowers with high credit scores and low debt-to-income ratios.

Learn more about bridge loans at Investopedia.com.

HELOC

The Home Equity Line of Credit, or HELOC for short, offers a way for you to get at all that equity you’ve built up in your current home. This is money you can use to buy the new home and then you will pay off the HELOC with the proceeds from the sale of the current home.

There are several disadvantages to using a HELOC to come up with the money for your next home. Speak with your lender and financial advisor about this option.

Borrow against your RRSP

Ask financial experts if borrowing money from your RRSP to come up with the cash for your new home is a good idea and you’ll get one of two answers: “Sure” or “No way!”

The latter camp includes pros who remind you about the fact that you’ll be losing the compounding benefits of your invested money. The former group will tell you to go for it because real estate is an amazing investment and, besides, you can pay yourself back.

Again, please speak with your financial planner before deciding on this option. Honestly, your financial planner is going to lose commissions on the deal. So, do what’s best for you and check first with your Accountant if you want an unbiased opinion.

Negotiate with the buyer

It’s always worth it to attempt negotiating certain contract terms with the buyer of your current home.

Ask the buyer for a longer closing, such as 90 days, to give you time to house hunt for the next home. You might also ask the buyer to consider renting your home back to you after the sale closes. Offer a healthy security deposit and agree to pay above-market rent to cover their mortgage payments, if necessary.

There are disadvantages to the rent-back scenario, so run this idea by your attorney.

Simultaneous close

Although it is often challenging, a simultaneous close is a common way of dealing with buying/selling. This type of transaction times the close of both transactions (the sale of your current home and the purchase of the next home) to occur simultaneously.

Yes, there are dangers in this option, especially in the hands of an inexperienced real estate agent.

Whether to buy or sell first is a common dilemma and both have their pluses and minuses. We’re happy to discuss this with you in more detail; feel free to contact us.

You might also like: Two deadly homebuyer and seller mistakes

About the Author:

The above article Should I buy a home first or sell first was provided by Regan Pyke, a leader in the field of sales, marketing, and smart home technology. Regan can be reached via email at [email protected] or by phone at 778-228-2448.

Thinking of selling your home? I have a real passion for buying and selling Real Estate, as well as marketing & real estate investing. I’d love to share my expertise!

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