A
lot of homeowners run into an increasingly common situation when considering
looking for a new home. They need or want to move but are undecided about if
they should buy a new home first or sell their existing home. The answer could
be yes or no depending on the borrower's situation. Let's explore the advantages and
disadvantages involving each choice.
Buying
first will of course leave you with higher expenses until your home sells later
on. However, selling first could potentially leave you “homeless” until you buy your new home.
Advantages of Buying Before Selling
Buying
a home prior to selling your old home can result in a few major benefits. The
first one is it can make the process of house searching more enjoyable.
Often
times, homeowners are pressured to speed up the buying process because they
need to be move out before their current home's closing date.
When you have
more time to search for a home, you have less regrets and don't overlook
certain processes when you buy a home. There's more time to compare lenders,
homes, inspections, etc.
An
additional key benefit of buying before selling your home is there is no
guarantee that the seller of the home will accept your offer. If the seller
rejects your offer, your new home search can proceed while still living
comfortably in your current home.
If
you plan on purchasing a home that needs some fixing, it will enable you to
stay in your existing home as you fix up your new home. Replacing floors,
painting, wall removals, plumbing, counter upgrades, wiring, and similar
projects are a lot less difficult to finish in an unfurnished home.
Disadvantages of Buying Before
Selling
There
are also a few drawbacks to buying a home before selling. The most significant
problem of buying a new home first is that you could be paying two mortgage
payments longer than you expect.
Many times home buyers expect their existing
home to sell quickly but that is not always the case. The risk is money
troubles could arise as you attempt to pay two house payment that includes
property taxes, insurance and if applicable HOA dues.
Furthermore,
you may have challenges with qualifying for a home loan until you sell your
existing home. You may need to use the proceeds of the sale of your home for a
down payment on the next home to get a mortgage.
If your offer is accepted on a
new home and are lacking the funds to pay for it, a great financial solution is
"gap financing" or a bridge loan. A bridge loan assists borrowers
with the down payment funds and closing costs until your existing home is sold.
There terms can range from a one month up to two years.
Tips for Buying Before Selling
Although
gap financing could be the ideal solution for you, make certain to think about
all areas of your decision. First, determine if you can truly afford the house
payments on two homes at the same time.
In a perfect scenario, your house payment which includes your mortgage,
taxes, and insurance should not be more than 32 percent of your gross monthly
income. If they are, you may want to reconsider buying a home before listing
your home for sell.
Consult
with a few local real estate agents in Orange County about listing your home
for sale and how long it should take to sell your home. Another option some
home buyers do is rent out their current home to help pay for that mortgage and
maybe sell it later down the road.
However,
being a landlord is not always an easy position. You may want to think about
hiring a property manager to relieve you of those tenant calls for maintenance.
They typically charge 10% of the rent collected.
