Selling your current home and purchasing a new one is a huge transition filled with many difficult decisions. And while the timeline of every real estate transaction is different, trying to close on an old and new property at the same time can be difficult (although not impossible). This leaves many buyers wondering, “Should I buy a new home before my existing one sells?”
Like a lot of real estate-related questions, this one doesn’t have a clear ‘yes’ or ‘no’ answer. To help you make this tough decision, we’ve outlined a few pros and cons of buying a new home before your current home sells.
If you plan to remodel the new home, your existing home provides somewhere to live while you work on the new house. It also gives you time to make any updates to your existing home to help attract buyers, budget willing.
While selling your home quickly is great, it can mean having to find a temporary place to live if you haven’t yet found a home you like. Buying a new home before your current one has sold also allows you to avoid this awkward interim and the hassle of moving twice.
The main disadvantage of owning two homes at once boils down to finances. If your existing home isn’t paid off yet, buying a home before your existing one sells will mean shouldering two mortgages at once. Obtaining two mortgages may not be possible given your debt-to-income ratio. Experts recommend that your total debts (including mortgage and home maintenance) don’t exceed 28 percent of your gross monthly income. If a second mortgage goes above this 28 percent, it’s probably not a good idea.
Some lenders also require you to pay off the first mortgage before qualifying for a second one. A bridge loan can be used in situations like these, allowing you to use the equity of your first home to buy the second home. However, these loans are strictly short-term and often have high interest rates.
Home equity loans function similarly to bridge loans, but usually have a 10- 20-year loan term. While home equity loans tend to have lower interest rates than bridge loans, they’re generally not given for homes that are currently on the market, meaning this financing needs to be lined up before you list your home.
Other Factors to Consider
Days on the market. Contact a local Realtor (or your favorite Urban Acres agent!) to find out how fast homes in your area are selling. Your Realtor will be able to tell you how many days homes in your area typically spend on the market.
Condition of your home. Well-maintained and move-in ready homes tend to sell faster. If there’s any room left in the budget with two mortgages, consider making some updates to your current home to increase the appeal for potential buyers.
Renting your home. Though this can be a good source of income while your old home is on the market, becoming a landlord can be a hefty responsibility, especially when it comes to maintenance-related issues. If you’re planning to list your home on the market while the renter is occupying it, you’ll need to find a renter who will agree to a short-term lease. They’ll also need to be okay with being given 24-hours’ notice to tidy up their space when potential buyers come tour the home.
When You Should Consider Buying Before Selling
It’s a seller’s market. This means there are more people looking to buy a home than there are houses for sale. It also means you’ll likely have plenty of interest in your home, and you can be fairly confident about selling it quickly. This will minimize the amount of time you’ll have to shoulder two mortgages.
You found your dream home or a deal too good to pass up. Of course, sometimes you find ‘the one’ and can’t (or don’t want to) risk waiting until your existing home sells. Playing it safe could mean missing out on a once-in-a-lifetime opportunity.
You’re downsizing. Downsizing usually means taking stock of all your current possessions and deciding what to keep and what won’t fit in your new home. Buying a home before your existing home sells gives you an idea of what kind of space you’ll have available in the new home and allows you time to sort through your belongings.
Should you buy a home before selling your current home? Long story short, it depends. Your financial situation and the state of your local market will ultimately determine whether buying a new home before selling your old one is a smart move.
Still not sure whether you should buy a home before your current one sells? Reach out and we’d be happy to help. Our experienced agents can provide all the local market insights and relevant information you need to make your decision.