When You're Ready to Move - Buy or Sell First?
The Chicken-Egg Dilemma
Homeowners ready to move face a tough decision: Sell your current home first and then buy another, or buy a new one and then sell? The answer depends on several factors like local market conditions, financing options, and your feelings about potentially moving twice.
Before you assume that your real estate market is a buyer's market or a seller's market, you need to realize that you need very specific market details for your neighborhood, the style of your home, and the price range for your property. In addition, you need to assess the availability of homes that meet your criteria. You'll need to work with a knowledgeable real estate professional who can talk to you about how quickly homes similar to yours are selling and for how much. On the buying side, you should do some preview shopping to get an idea of what you want and availability.
In an ideal world, everyone would have the funds to pay cash for their next home, but the reality is that most people need the equity from the sale of their current home for the down payment on the next house. One option is to sell your home and then negotiate to rent it back from your buyers, but remember that you'll need to pay them for the rental. Also, lenders will limit the rent-back term to a maximum of 60 days because a rental lasting longer than that would be considered an investment property.
Alternatively, you can temporarily live with friends or family or in a short-term rental while you're between homes. In that case, you might need to pay for a storage facility for your possessions.
A drawback to selling your home first is that you may be unable to find a home to buy, or you may feel rushed into taking a place that doesn't meet your expectations.
If you can qualify for the mortgage loan on both your current home and the next home, you can access the equity in your current home with a line of credit. You'll need to take out the line of credit before you put your home on the market and then you can pay it back at settlement. A lender can help you evaluate your options.
Risk Aversion and a Plan B
You'll have to ask yourself what possible negative consequences you can afford to live with: selling first and having nowhere to live or buying first and being stuck with two mortgage payments. The answer depends on your finances and your local market, but in either case you should have a back-up plan to deal with your worst case scenario – either another source of income for those mortgage payments or an identified place to live for a few weeks or months while you shop for a home.