As a homeowner who has recently gone through the process of selling my home and purchasing a new one, I can attest to the fact that deciding whether to sell first or buy first is a complex and often stressful decision. It's a balancing act that requires careful consideration of your financial situation, risk tolerance, and the current state of the housing market. In this article, I'll dive into the strategies, financial implications, and real-life examples of navigating this tricky transition.
The Sell-First Strategy: Minimizing Risk and Maximizing Certainty
One approach is to sell your current home before purchasing a new one. The least risky decision is to sell your property first, so you know for certain what the proceeds are, then move into a rental property while you look for something to buy.
The main advantage of this strategy is that you'll have a clear picture of your financial situation and the funds available for your next purchase. This can be especially beneficial in a competitive market where you may need to act quickly and make a strong offer.
However, selling first does come with some drawbacks. You'll likely have to spend more money on a rental and the costs associated with moving twice. According to the American Moving and Storage Association, the average cost of an intrastate move is $2,300, while an interstate move averages $4,300. These expenses can add up quickly, especially if your rental period is extended.
The Buy-First Approach: Seizing Opportunities and Maintaining Flexibility
On the other hand, some homeowners choose to purchase their next home before selling their current one. Some homeowners have enough cash or accessible home equity to make this work.
Buying first can be advantageous if you find your dream home and want to secure it before it's off the market. It also allows you more time and flexibility to prepare your current home for sale and avoid the stress of a rushed move.
However, this approach does come with financial risks. You'll need to qualify for and carry two mortgages simultaneously, which can be a significant strain on your budget. According to US Census Bureau, median mortgage payment is: $1,775 in 2022. Doubling that expense can be challenging, even for those with stable incomes and substantial savings.
Bridging the Gap: Financing Options for Buying Before Selling
If you do decide to buy before selling, there are some financing options that can help bridge the gap. One solution is a bridge loan, which is a short-term loan that allows you to tap into the equity of your current home for the down payment on your new one.
A traditional bridge loan is a loan based on the equity in your home and the anticipated equity in the next home. However, these loans often come with higher interest rates and strict debt-to-income ratio requirements.
Another option for buyers who can qualify for both their current and new mortgage payments is a low-down-payment loan. Some lenders offer programs with up to 100% financing and no mortgage insurance requirements. However, these loans may come with higher interest rates, which can add to your long-term costs.
Real-Life Experiences: How Homeowners Are Making It Work
To illustrate these strategies in action, let's look at a couple of real-life examples from homeowners who have navigated this transition:
1. The Sell-First Success Story:
"We had enough money to handle two payments, so we spent a month moving from one house to the other, then spent a month readying the empty house for sale and then put it on the market. Fortunately, it sold quickly."
These homeowners had the financial stability to carry two mortgages for a short period, allowing them to take their time with the move and preparation of their old home for sale. While this approach requires a higher risk tolerance, it can pay off if the old home sells quickly.
2. The Rent-and-Regroup Approach:
"Within the next several months, we will be selling our home and moving South. We were going to buy a new home but decided to rent for the time being. One of the main reasons was just what this article is about, trying to coordinate the timing of the sale and purchase of a new home."
For these homeowners, selling first and renting temporarily provided a way to alleviate the stress of timing the sale and purchase simultaneously. Renting also gives them the opportunity to explore their new location and make a more informed decision when they're ready to buy, without rushing into a purchase.
The Bottom Line: Weigh Your Options and Seek Professional Guidance
Ultimately, the decision to sell first or buy first depends on your unique financial situation, risk tolerance, and the current housing market conditions. It's essential to weigh the pros and cons of each approach and seek guidance from trusted professionals, like a financial advisor, real estate agent, and mortgage lender, who can help you navigate the process and make informed decisions.
Remember, even the best-laid plans can go awry, so it's crucial to have contingency plans in place and maintain open lines of communication with all parties involved. With careful planning, strategic thinking, and a bit of flexibility, you can successfully navigate the home selling and buying balancing act and come out on top. Learn about this process.
