Is Buying Before Selling Too Much of a Risk?
It’s the age-old question that buyers and sellers ask themselves when they’re ready to make a move: should I buy first or sell first?
The best answer depends on the situation. In many cases, homeowners decide to start looking around to see what’s out there before they put their homes on the market. That way, they’ll be able to make sure that they’ve got a place to retreat to if their current property closes quickly.
Buying a home can often take longer than selling depending on the market. Buyers want to make sure they’ve been able to find exactly what they want without being in a rush to settle for any home if their current home closes sooner than they expected.
But either way, there are certain inherent risks to buying first or selling first.
What’s the Risk of Buying First?
If you by a home before your current home sells, the obvious risk would be that you may be stuck with two homes, paying two mortgages. If you end up finding a new home rather quickly and your current home takes forever to find a willing buyer, this is precisely the conundrum you could find yourself in.
This risk is more prevalent when the market starts to cool. Many sellers who may have been seeing other sellers sell very quickly as a result of a hot seller’s market may want to capitalize themselves. But they may often get into the market just a little too late as the market starts to cool.
What could end up happening is having a listing that lingers for weeks, despite already committing to a new home. The deal on the new home closes, while the current home still has yet to receive a solid offer. You would then have two homes – and mortgages – to juggle at the same time, which can end up being quite stressful, both emotionally and financially.
That said, you don’t necessarily have to pay two full mortgage payments every month, as this could certainly prove to be a huge financial burden that many people wouldn’t be able to handle. Instead, you may be eligible to take out a “bridge loan” to help ease the financial burden of carrying two homes.
A bridge loan is a temporary loan that covers both the buying and selling transactions. It can help you secure your new mortgage until you’re finally able to be rid of your mortgage obligation on your current home. If you don’t have the funds to carry both mortgages and your current home still hasn’t sold, a bridge loan would allow you to fund the down payment for your new home.
It should be noted, however, that you would still have to get approved for a bridge loan, much like any other type of loan. As such, there is always the risk that your lender may not approve you for a bridge loan, which means there’s always the chance that you could be stuck with more expensive financial obligations until your current home sells.
Should You Buy or Sell First?
As mentioned earlier, the answer to this question will vary depending on a number of factors.
For starters, what is your financial position like? Would you be comfortable paying two mortgages for a temporary amount of time in the event that your current home takes longer to sell, even though you’ve already committed to another property? While bridge loans exist, you’ll also have to make sure you qualify for one.
Also, consider the market. Are you in the middle of a buyer’s or seller’s market? A buyer’s market means there is plenty of inventory to go around. Demand isn’t very high, though supply is abundant. In these markets, it’s usually easier to find a home to purchase than it is to sell. Buyers may have their pick of the litter, while sellers may have to fight harder to make a sale.
A seller’s market, on the other hand, is quite the opposite. There is limited inventory available, and buyers are competing with one another for whatever is listed. In these markets, homes tend to sell rather quickly.
Keep in mind that you’re both a buyer and a seller. No matter what market you happen to be in, you could find one transaction very easy, while the other may be a lot more challenging.
If it’s a buyer’s market out there, consider listing your home first, as it could probably take longer to sell than to buy. But if you’re in the middle of a seller’s market, consider looking for a home first.
This is especially true if the market is on the rise. In this case, buying before selling can be a great way to get ahead when the market is on its way up, especially in expensive centers. Just be sure to time your move right, or else you could find yourself getting caught out of these rising markets. In this case, you may have sold your home already but can’t find a new house to purchase because of the rise in competition.
There is also the option of inserting a clause on the offer you submit on the new home that makes it conditional upon the sale of your current home. While most sellers don’t like these clauses, some may be open to them if they themselves are having a tough time selling.
The Bottom Line
Regardless of which avenue you take, be sure to make your decision upon the guidance and advice of a seasoned real estate agent. Have an in-depth conversation with your realtor so that you completely understand all of your options and potential risks to help you make a sound decision.
