Whether you should sell your home before you buy your next home depends on a variety of factors, including your financial situation, the real estate market, and your personal preferences. Here are a few things to consider when deciding whether to sell your home before you buy your next one.
Your financial situation
If you have enough savings or access to other sources of funding, you may be able to purchase your next home before selling your current one. This can be a good option if you are in a strong financial position and are confident that you will be able to sell your current home in a reasonable amount of time. If it is a seller's market then your may be able to sell quickly for a high price, but be warned: you may need more than just a down payment to purchase a new house, you may need an all cash offer.
Another option is if you secure a bridge loan. This is a short-term loan that is pretty specific to this exact situation. When your need to put an offer in for your new house before you old home sells, this gives you quick cash until you can secure financing from the proceeds of your old house. The danger with this type of loan is that the carry high interest rates; no problem if your home indeed sells quickly but potentially dangerous if you get stalled in the selling process and your start getting hit with high payments. There are other types of financing options, like a "second mortgage" (home equity loan) or a HELOC (home equity line of credit), that allow you to borrow against your property. However, these options carry the same aforementioned risks as bridge loans.
The Housing market
If the market is strong and there is high demand for homes in your area, you may be able to sell your home quickly and at a good price. This can give you the flexibility to purchase your next home before selling your current one. Similarly, if the market presents an incredible opportunity to buy your dream home, then it makes sense to buy before you sell your current property.
A great local real estate agent will be able to advise you through all of these nuances. They can tell you exactly how much you'll need for a down payment; they'll break down your finances using DTI (debt-to-income ratio) to show you your borrowing options and if you can even take on another mortgage; they'll tell you what prospective buyers will pay for your home. Great agents will also provide great recommendations from their vast experience -- they can put you in touch with a reputable mortgage lender or help find you a short-term rental.
In a competitive market, you want a great agent to help give you... a competitive advantage. Not only can they help you with your home sale and help you buy a house, they can navigate you through the complexities of real estate transactions. We built TrueParity so the best agents can find you -- like we said, why not get the best help you can find?
Personal preferences
If you are comfortable carrying two mortgages for a period of time or have the means to rent out your current home while you are looking for a new one, you may decide to sell your home after you have already purchased your next one.
Nobody wants multiple concurrent mortgages, but if you can rent your current house before selling and find cheap, temporary housing for yourself then it's doable. If you think about this way, you are not making two mortgage payments; your tenant is making one of them for you while you just pay your new mortgage.
Make sure you also factor in other items like closing costs, moving expenses, and any potential impact on your retirement savings. You want to make sure you're totally comfortable with the route you choose, and that starts by accounting for all the details.
Conclusion
Ultimately, the decision to sell your home before or after purchasing your next one will depend on your individual circumstances and goals. You'll want to understand all your financial parameters, vet the market for opportunity, and assess your own personal risk tolerance. It may be helpful to speak with a financial advisor or real estate agent to get a better understanding of your options.
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