Who’s On First? Should You Buy a Home Before You Sell Your Existing Home?
You’re ready to sell your existing home and purchase another. However, you’re faced with the decision of whether to buy your new home first or to sell your existing home first. In order to make this important decision, one needs a good understanding of:
The condition of the local housing market – Will there be a demand for your home? Is there a demand for the home you want to purchase?
Your financial situation – How much equity do you have in your home? What is your borrowing power for your next home? Do you need your existing home’s equity in order to buy? Our financial calculator can help you to sort out some of the details regarding your current financial situation.
The availability of loan products – There are great loan tools, like the 80-10-10 mortgage loans, making their way back to the market. Our local business page has links to several good Washington, DC area lenders.
Choosing to Buy First
On the plus side, you can choose the home you want on the terms that you are comfortable with. On the negative side, the risk of selling your home falls back on you. Tools to help you make this all important decision include:
- Home Sale Contingency – You purchase a home contingent on the sale of your existing home. You will have an agreed-upon time frame in which to sell your home. During this time, the seller may continue to find a non-contingent buyer. If another buyer comes along, the seller would give you notice to either remove the contingency, or the contract would be canceled. This is a hard contingency to get accepted when the seller has a home in high demand.
- Delayed Settlement – Provided you are in a situation where you can purchase your new home, with or without the sale of your existing one, you may find sellers willing to work with you. This contingency is typically structured with an end date, at which time you will need to purchase your new home.
- No Home Sale Or Settlement – In this situation, unless otherwise stated, your new home purchase would not be tied to your existing home. The seller would expect to see your lenders pre-approval stating that you could purchase their home without selling yours first. In the past, bridge loans and equity lines were commonly used for this approach, making it easier for buyer and seller to qualify, but these products are not readily available. Therefore, in addition to your equity, you will need income to support both loans as well as the cash to purchase your new home.
Choosing to Sell First
On the plus side, you have the funds to purchase your new home and know your bottom line. On the negative side, you are working with a deadline to find an acceptable place in which to move.
In a typical sell first, your house is under contract awaiting settlement. Inspections, loans, and appraisal contingencies will be at some stage of completion. On occasion, we have clients who have actually sold their home first and made concessions, money in hand and debt gone. All sellers will be receptive to this.
Tools to help with the decision to sell first include:
- Home of Choice Contingency – You would, with your buyer, negotiate a set number of days to find a house. In the event that you are unable, or unwilling, to find a property to purchase, you may void your contract within the time frame given. The seller of the house that you want to purchase will want to see figures proving your ability to purchase, with or without the sale of your home.
- Contingency on Settlement – If you have sold your house and applicable contingencies, like the home inspection, financing, appraisal, HOA, or condo docs, have been removed, you would be agreeing to make your purchase contingent on the successful settlement of your existing home. If you don’t meet the deadline, your purchase contract could become void.
- Delayed Settlement – When delaying the amount of time until you must move from your home, you’re betting on finding a suitable place to move. Since buyers may want to lock in rates, buyer financing and time frames might come into play. Additionally, the seller of the house you plan to purchase may want to see proof of your ability to purchase, with or without this delayed sale going to settlement.
- Rent Back - This tool simply buys more time after the sale of your home. With funds in hand, you can rent back. The cost for this option is typically calculated at the purchaser’s daily cost. Lenders now are now asking for this time period to be 30 days or less.
Whether you choose to buy first or sell first, you can rest assured that the Schuck Group is here to assist you in the purchase and sale of your home.
