Homeowners who’ve made the decision to relocate to a new home are faced with many important decisions. In addition to finding the right real estate professional to partner with, there are down payments and mortgage changes to consider, neighbourhood and school preferences to decide on and the list goes on. Those who are ready for a move are also faced with an important decision – should they buy their new home first, or sell their current one first?
While there isn’t necessarily a “correct” choice, homeowners are encouraged to look at the pros and cons of each situation, and choose the option that best serves their needs.
Homeowners who choose to sell their current home first do themselves a couple of favours. First, they are removing the risk of owning two homes at once. Purchasing a new home first and taking the risk of having the current home sit on the market, could put someone in a position where they are forced to carry two mortgages. For many people this is simply not an option.
Selling before buying is also beneficial for homeowners because it allows them to enter the housing market knowing exactly how much money they will have to put toward their new home.
Selling the existing home first can have drawbacks, however. Shopping for the right home when you’re faced with a looming closing date isn’t always ideal. Homeowners who rush the buying process run the risk of paying more than they planned for a home, or settling for a home that they aren’t convinced is the right choice for them.
In order to deal with these uncertainties, realtors suggest having a back-up plan in place. In the event that the sale of the current home closes first, homeowners should consider living with a friend or family member while they are looking for their new home. Another option is to look at a short-term rental. If the purchase of a new home closes first, homeowners can access “bridge financing”, which covers the down payment and other closing costs until the sale of the current home closes.
Searching for a new house can be an enjoyable process. Looking through different types of homes in different neighbourhoods, imagining yourself and your family enjoying the space and amenities, it can be a very special time in the life of a family. Buyers who are very keen on finding the exact type of home they have always loved or dreamed of, will have more flexibility in their house search if they opt to buy before selling their existing home. Without an impending closing date hanging over their heads, they have time to wait for the right home to become available.
With this type of approach, however, there are risks. As we mentioned earlier, homeowners who buy first could find themselves in a situation where they actually own two homes and are responsible for paying both mortgages. For people in this situation, the luxury of waiting for the best offer on their original home may not be an option. It could also prove difficult to secure a mortgage for the new home.
Buyers who have homes to sell do have the option to make their offer conditional on the sale of their current home. This gives them the protection required should their house not sell within a specified time period. The drawback of this, however, is that conditional offers can be less appealing to sellers, especially in a situation where there are multiple offers or bidding wars.
Having a detailed conversation with trusted real estate agent before making these types decisions is always advised.