As a current homeowner, you’re already familiar with the home buying process: determine your wants and needs, find a REALTOR®, secure financing, and begin your house hunt. You’d think your second time around would be easier, but buying a new home when you already own a home is a uniquely challenging situation.
It’s generally believed you shouldn’t buy a new home before selling your old home - no one wants to be stuck with two mortgages. However, the decision isn’t as straightforward as it seems. It is possible, and in some cases preferable, to buy before you sell.
Kelly Boenzi and Megan Ryan, agents with the Zimmerman Group, suggest considering these three factors when deciding if you should buy or sell first.
1. What's the Housing Market Like?
One of the biggest factors in determining whether you should buy or sell first is the type of housing market you’re in. Your local market trends will determine how quickly your current home will sell and how difficult it will be for you to find your next dream home.
The Zimmerman Group’s agents can provide you with valuable market insights for your specific area.
- You’re In a Buyer’s Market - Kelly’s Advice: Sell First
A buyer’s market means the number of houses for sale is greater than the number of buyers. Low demand puts the buyers in the driver’s seat.
As the buyer, with less competition, you’ll have plenty of options and likely score a great deal.
However, when you’re selling your current home, due to the lack of demand, your house might sit on the market longer than you’d like.
“Without the pressure to sell quickly, you can wait for the perfect offer to roll in. You’ll also know exactly how much you can afford to pay for your new home.”
- You’re In a Seller’s Market - Megan’s Advice: Buy First
House hunting in a seller’s market means there are more people looking to buy a house than there are houses for sale. This puts buyers at a disadvantage. With so much competition, it may be a long time before you’re able to finalize a deal on a new home.
On the flip side, extra competition from buyers means when you do list your current house, you can expect it to sell pretty quickly and for top dollar. So, even if you do have to carry two mortgages, you shouldn’t have to do so for long.
“Buying first in a seller’s market allows you to take your time and find your next perfect home without a time crunch.”
2. What Are Your Finances Like?
For most people, it isn’t financially feasible to carry two mortgages. When you’re figuring out if you should buy or sell first, your immediate access to cash and your debt to income ratio are often the ultimate deciders.
- You Have Cash Available - Megan’s Advice: Buy First
If you have cash available to cover the down payment of your new home or even make an all-cash offer, you won’t have to worry about the burden of carrying two mortgages.
Don’t forget to consider the additional expenses involved with moving like staging your home and hiring professional movers.
“The thought of carrying two mortgages is a scary prospect for most people. If your home-buying budget isn’t dependent on the sale of your current home you’re in a great position to buy your new home first.
- You Have a High Debt-to-Income Ratio - Kelly’s Advice: Sell first
Your debt-to-income ratio is a comparison between your monthly debt payments and your gross monthly income. Lenders consider your debt-to-income ratio low if less than 28% of your monthly income goes toward your mortgage payment. Anything higher and you may not qualify for a second mortgage.
There are ways to access your home’s equity to support the purchase of your new home. You can consider:
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- A bridge loan.
- A home equity line of credit (HELOC).
- Borrowing against your 401(k).
- A cash-out refinance.
- A sale-leaseback agreement.
“For most homebuyers, buying a new home before you sell your old home means getting a bit creative to free up funds. That can be a time-consuming and stressful proposition.”
3. What Works for Your Family?
The decision to buy or sell first involves more than just your budget. What might make sense for your pocketbook, might not make sense for your mental health. The timing of your move affects your entire household.
- You Have Young Kids - Kelly’s Advice: Buy first
Keeping your house sale-ready with kids running around is a near-impossible task. Toys, and other kid-related messes, can hurt your chance of selling quickly and for top dollar.
Not only do you need to consider how you’ll contain child-related clutter when you’re selling your home, but you’ll also need to consider the stress involved with selling your current home before you’ve bought a new home.
Packing up and settling into temporary housing, even for a brief period of time, and then packing up and moving again when you’ve bought your new home, adds a lot of stress to an already challenging situation.
“When you have an active family, with multiple schedules and school and work commutes to consider, moving twice is often more trouble than it’s worth.”
- You Have Temporary Living Arrangements - Megan’s Advice: Sell first
For those of us lucky enough to live near friends and family who are willing to share their home temporarily, selling your first home before you buy is a great option.
“Finding a temporary place to live and store your extra belongings can be a huge challenge, both financially and emotionally. Having both of those issues figured out can make the moving experience much less stressful.”
Whether you buy first, sell first, or buy and sell at the same time, timing is key. No matter which route you take, the Zimmerman Group’s experienced agents are here to help.
If you’re ready to experience something greater contact us today.
