Moving up from a starter home is an exciting prospect, especially as it often comes with a big change in your life, such as a new partner, child, or a new job. Once you start to look at the logistics, the process can become a daunting one. Apart from the joy of packing, at some point you realize that you’ll have to find and buy a new home in addition to selling your current one. Perhaps the most important question is: Which one do you do first?
If you can afford to straddle two places at once, there are benefits to buying a home before selling your current one. You don’t have to worry about temporary housing and moving twice, which can be costly as well as stressful – not to mention that in some places, rental markets are extremely competitive. If there are other people in your household, moving more than once can be disruptive to your school/work routines, especially if the temporary location isn’t ideal. If you want to buy a home before selling your current one but don’t have the necessary cash, you have the option of applying for a bridge loan. A bridge loan is a short-term financing tool that helps purchasers during the period between closing dates. Bridge financing allows you to use the equity in your current home as a down payment for your new home while waiting for the sale of your existing home to close. These loans are a very short-term solution, though, typically for only 90 days, and are generally only an option when a sale agreement is already in place for your current home.
If you buy your new home first, you can move as soon as you would like to set the closing date and get the keys. This eliminates the need for storage rentals that you might need if you decide to sell your current home first. In certain markets, it’s also expected that you stage your home. Even if staging isn’t expected, it can boost the final sale price or help it sell faster than it would otherwise. If you buy a home before selling your current place, you don’t have to worry about keeping your home pristine for weekend open houses and surprise showings; you can move out and leave the place clean and clutter-free without feeling that you’re living in a showroom.
Get help from a professional real estate agent or mortgage expert
Working with a mortgage professional will help you determine the financial implication of buying or selling first, and working with a real estate professional will help you figure out the climate of the areas where you’re looking to buy or sell. Sellers’ markets can work for you when buying and selling. Right now we are in a hot market in Waterloo Region and you don’t have to feel as much pressure to wait for your home to sell because desirable inventory is low (I wish it wasn’t this low). In this current real estate climate you may feel that you have to jump on submitting on offer on a property that you like because you can be fairly confident if you don’t snatch it immediately, someone else will. While a soft market gives you more time to look and make a decision, it often means longer wait times for the right buyer to come along for your property.
Conventional wisdom, however, is that you sell your existing home before buying a new one.
The obvious advantage to selling your home first is that you don’t have to carry two mortgages. Not only are two mortgage payments expensive, but if you aren’t porting your mortgage and are getting a new one, then you have to go through the application process again and already owning a property might impact your borrowing capacity and/or interest rate for your new mortgage. Additionally, if you’re getting a new mortgage the sale price of your current home probably has some bearing on what you can afford for your next home. Even if you think you and your Realtor have listed your home at fair market value, you ultimately won’t know what that sale price is until you accept an offer.
If your home sells quickly like the majority of our clients’ homes do, finding temporary housing with friends or family or even renting isn’t always a bad thing. Doing so can mean that you can put an offer on a new home without the condition of sale of your current home, making your offer more attractive to sellers. You may also be more flexible in terms of closing dates. Of course you want to get settled into your new home as quickly as possible, but being able to tailor your needs to that of the seller can make the difference between your offer beating another.
When you sell first, you also have a little more freedom than you would if you buy another home first. You don’t have to settle if you don’t see the perfect property right away. Or you can sell your home, get a long closing when buying another home and take some time off before you get the keys. If you’re in a situation where your things are in short-term storage until you find a new home anyway, maybe you can even take the opportunity to travel, even if it’s just for a short period of time. You’ll come back relaxed, refreshed, and ready to unpack in your new home.
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