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Should I Buy First or Sell First?
To buy first or to sell first – that is the question. It is an important decision that requires careful consideration. There are upsides and downsides for each option, which we will take a closer look at now.
Can You Afford Two Homes?
If you need to sell your house in order to qualify for a mortgage for your next home, then there really is no choice to be made. You will have to sell first. If you’re in a favourable financial position and have the ability to carry two mortgages, then there is nothing stopping you from buying.
Choosing to buy a home first may saddle you with two mortgage payments for a while. The question is, for how long could you manage the load? The length of time it would take to sell your second home will also depend on market conditions.
What are the Market Conditions?
Real Estate runs in cycles, in varying supply and demand levels, which affect prices more than any other factor. Each cycle brings various advantages to both buyers and sellers in what are known as buyers or sellers markets. Let’s take a closer look at each:
A buyer’s market has more sellers than buyers. More inventory on the market means that houses are priced lower and sellers are more open to concessions during negotiations. This could provide an excellent opportunity to pick up a house at great value. It’s understandable that purchasing your next home at this time would be appealing.
Once you acquire your new home, you would still have to sell your original house. Keep in mind that you would also be selling it in the same market that you just purchased in – a buyer’s market. Many competing listings mean houses typically take longer to sell. Even in favourable real estate markets, houses may be listed longer than expected. Could you afford to carry your listed home until it sold? If so, for how long?
Some place a high value on having a plan mapped out in front of them. Buying your next home first will tell you how much equity or money you will need to take out of your original house in order to afford the new one. You will also know when you would need to finalize the sale of your current house in order to move into the new one. To know that you have somewhere to live when your existing house sells can bring peace of mind as well.
A seller’s market has fewer homes than buyers. In this kind of market, sellers are able to demand more than market value and at terms to their favour. Houses aren’t listed long and are snapped up quickly in a seller’s market. If you list your original home in a seller’s market, it shouldn’t take long for a buyer to be found. In this case, your responsibility to two properties would not likely be for an extended period time, and you may end up fetching a hefty price for your original home in the end.
The other scenario that could happen in selling your home first is that you may not find your ideal home right away. Would you be willing to make concessions in order to find a new home by the closing date? The other option would be a short-term rental. You would have a place to live but would also have the inconvenience of moving twice. Would you be willing to do that? Another concern is if you have children, where would they go to school? And if you have excess household items, where will you store them? Friends and family may be able to help you out with this, but there are always storage facilities available for your use until you find the right home.
Generally speaking, there is less financial pressure when you sell your home first. You can be pre-approved for a mortgage and see all the possibilities in housing options within your price range and according to your timetable. Selling your current home first also eliminates financial risk – no double mortgages and double payments for property taxes and insurance payments. And it brings no concerns of how you will come up with a down payment for your next home.
Some may maintain that selling first makes the most financial sense of the two options. If you choose to sell your home first, you will have money in the bank and pre-approved financing in place for the balance you need when you do find your dream home. You will also be positioned as a cash buyer when you make an offer on the home you finally want.
Each option has its own strengths and drawbacks, with logical reasons behind them. You must assess your financial picture honestly, as well as your ability to handle the stress that will go along with any decision you make.
Give us a call today to see what scenario would be right for you.