Should you sell your first home before you buy your next one? If you do, where will you live in between? Can you buy a new home before you sell your old home? If you do, how will you pay for it with your money tied up in your first home? It’s enough to make your head spin.
While conventional wisdom suggests you shouldn’t buy a new house before selling your old home, it is possible, although riskier than selling before you buy. To decide what’s right for you, consider the pros and cons of each approach and then take the process step by step.
Pros of Selling Your Old Home Before Buying Your New Home
- Access to cash: Selling your old home before you buy your new home gives you cash in the bank. This means you’ll have funds available for a decent down payment and you won’t run the risk of having to pay two mortgages.
- The possibility of a better deal: When you’ve already sold your first home, you’ll have a clear idea of how much money you have to spend on your new home. And, without the pressure to sell quickly, you can make sure you’re getting a great price when you sell. On the flip side, going into a new purchase without a contingency to sell your old home can be very appealing to sellers.
- Less stress: With one deal behind you, you can focus on what lies ahead. Not having to worry about moving funds around, or paying two mortgages simultaneously, makes the path from moving from your current home to your new home much smoother.
Cons of Selling Your Old Home Before Buying Your New Home
- Extra unknowns: When you’ve sold your current home before you’ve bought your new home you’ll need to consider where you’ll live in the meantime. It can be stressful to find a temporary place to live. You may feel like a burden if you’re staying with friends or family and the pressure to find a new home quickly may cause you to make a rash decision.
- Additional costs: It’s unlikely that your temporary housing will be able to accommodate all of your belongings. You’ll need to budget for a storage locker while you house hunt. And, because you’ll actually need to move twice – from your old home to your temporary home and then into your new home – you’ll also need to budget for two sets of moving costs.
Pros of Buying Your New Home Before Selling Your Old Home
- Less of a time crunch: When you’re buying your new home while still living in your old home, you won’t have the pressure to move out of your temporary housing situation meaning you can relax and enjoy the home buying process. Plus, you’ll have peace of mind if your new deal falls through knowing you still have your old home to stay in.
- Only one move: If you wait to see your old home until you’ve bought your new home, you’ll only have to pack up your things and move once. This will eliminate the need to budget for storage and temporary housing. Plus, if your new home needs improvements, you can stay in your old home while those updates are made and your new home is move-in ready.
Cons of Buying Your New Home Before Selling Your Old Home
- Financing can be tricky: With your funds tied up in your old home, coming up with enough cash for a down payment, especially if you’re moving into a more expensive home, can be difficult. While there are ways to overcome this hurdle (see below), this is a big challenge many current homeowners try to avoid. In some cases, you may not qualify for a new mortgage if you have an existing one.
- Additional costs: If you’ve bought a new house before selling your hold home there will be a period of time when you’re paying two mortgages. Not only that, but you’ll also be responsible for two sets of taxes. Both of these scenarios should be budgeted for ahead of time.
- More stress: Figuring out financing can be a huge stressor. You also need to consider what to do if you don’t sell your house right away. You can rent your old home while it’s on the market to help cover some of your monthly payments, but being a landlord comes with its own set of issues. The pressure to sell might make you accept a lower offer on your home just to be done with it.
- Making sure you can close on the same date is a huge part of negotiating terms.
- Expect the unexpected: Planning for the worst-case scenario allows you the flexibility to walk away from a deal you’re not happy with or bounce back if a potential buyer backs out with a minimal loss. Knowing that things might not go as planned and having an idea of how to deal with temporary housing, extra moving costs, or hold-ups with financing will give you peace of mind as you make your move.
Moving from your old home into your new home is a different process for everyone and what might be right for you may not be right for your neighbor. Working with a REALTOR® to understand your options and support you in the complicated process of buying and selling will help ensure you’re happy in your new home.
