The Big Question: Are you Going to Buy First or Sell First?
This five-part series is a “how-to” guide for finding your next home while selling your current one. Whether it’s your first time moving up or you’ve done it before, we hope 4 Easy Steps for Buying and Selling at the Same Time is a great resource!
It’s never simple when you’re ready to move to a new home and you already own one you’re ready to sell or rent out. You get overwhelmed just thinking about what comes first, what to do when, how to pay for everything, and how to time it all so you don’t end up with two homes or no home.
It’s both a logistical and financial dilemma!
That’s why we’re here to help explain how to make this all happen, step by step. And help your stress levels decrease at the same time.
First things first
The first thing you’ll want to consider when deciding whether to buy or sell first is the financial aspect. You need to talk with your lender to examine your financial options for this next purchase. Think about what you feel comfortable paying per month for your next home. Before you look at homes online, consider what you want your monthly mortgage payment to be.
Keep in mind that every $10,000 change to your purchase price only raises your monthly payment by about $60 per month (based on today’s interest rates), so a range to work within is actually better.
Secondly, determine how much cash you want to put toward that purchase. Perhaps you’ve been saving so you can have a bigger home without a bigger monthly payment. Or, maybe you want to save some of the equity from your current home for another purchase or updates in the new home.
Do you have liquid funds elsewhere? We have some tricks of the trade to help you get cash out of your home without selling it or even getting cash out of your brokerage accounts without having to sell those assets either.
For now, jot down how much cash you have in total, where it is, and how much you want to put toward your new home once everything is said and done.
Working with your lender
The next step is to talk to your lender about your desired monthly mortgage payment and the total cash outlay for the new house. Many people are approved for much more than their desired monthly payment, so try not to get distracted by those large dollar signs!
At this point, your lender will run an approval and ask for bank statements, pull your credit and most importantly provide you with a loan summary sheet. This way, you know how much house you can afford. Calculate this number by using your preferred monthly payment and the financial information given for the approval process.
Two questions to discuss with your lender:
- What amount are you approved for while keeping your current home?
- What amount are you approved for if you sold your home first?
Selling your home first
If you need to sell first before you buy, keep these factors in mind:
- You might need to rent back your old home or find a place to stay between homes if you don’t find another home immediately.
- Once you sell your home, you have only a short time to rent back. But don’t let that pressure you into making a rash decision about your new home!
- Another option is to have a “sale of home” contingency on the new home you are buying. However, typically, the seller of your new home will look unfavorably on this contingency and may not accept it
Buying your home first
If you’re able to buy first before you sell, you have a lot more options. This is usually the easiest and least cumbersome way through the process. Consider this:
- There are several ways to get cash out of your current home or other investments you have, however, it takes a little time and planning, so this step needs to start early.
- Because you don’t need to move right away when you buy your new home, you have time for any renovations you may want.
- You will own two homes at once and could have double mortgage payments for a while, depending on when you sell your home. I’ll be able to ballpark how long this may take and what to expect timing-wise.
- When you do decide to sell your home, you won’t know how much it will sell for, which can make financing trickier.
- You run the risk of having a vacant home you’ll need to stage, which can come at an extra cost.
Moving forward
Your lender and agent (that’s us!) will work together to help you determine which option is best for you financially – to buy first, sell first or rent out your home.
Keep in mind that the time of the year and location of your home may also play a part in which decision is best for you.
This can be overwhelming and stressful, but we can help you plan it out like clockwork. Contact us to talk more and we’ll put together a plan specifically for you. Or click here to schedule a meeting directly!
