Many homeowners face a common dilemma when it comes time to find a new home. They want to move but are not sure whether they should sell their existing home first or buy a new home before selling. While there is no right or wrong answer, it is important to be aware of the pros and cons associated with each choice. Buying first will of course leave you with higher expenses until your home sells later on. However, selling first could potentially leave you “homeless” until you buy your new home. Here is a closer look at the benefits and downsides of buying before selling.
Pros of Buying Before Selling
Buying a new home before selling your old one can have several key benefits. First, it can make the house hunting process more pleasurable. Many times, homeowners are forced to speed up the buying process as they want to be able to move before the closing date on their existing home. When you have more time to house hunt, you can feel better about your decision and not have any regrets about the house you purchase.
Another major benefit of buying before selling is that you have more time in case something goes wrong. There is no telling whether or not a seller will accept your offer. If the seller ends up turning down your offer at the last moment, you can continue hunting for a new home while still living comfortably in your home. If you plan on buying a fixer-upper, buying before selling can also be a good idea. This allows you to live in your current home as you fix up your new home. Painting, replacing floors, and similar projects are much easier to complete in an empty home.
Cons of Buying Before Selling
There are also several downsides to buying a home before selling. One of the biggest risks of buying first is that you may be stuck paying for two houses at the same time. While you may expect your home to sell fast that is not always what happens. If you buy a new house and are unable to sell your old one, you could run into financial issues as you try to pay two mortgages, two sets of taxes, and other costs of homeownership.
In addition, you may have difficulty qualifying for a mortgage for a new home unless you sell your old one first. Whether you are low on funds or just do not have the credit to get a mortgage, you may find that you need to sell your old home before you can get a new one. If you do purchase your new home and do not have the funds to pay for it, you may be required to obtain something known as “gap financing” or a bridge loan. A bridge loan helps cover the cost of the down payment and closing costs until your old home sells and goes through the closing process.
Tips for Buying Before Selling
While gap financing may be the right choice for you, be sure to consider all aspects of your decision. First, ask yourself if you can really afford to own two homes at once. Even if you qualify for a second mortgage, you will want to sit down and look closely at your finances to determine if you can comfortably pay for two house payments. Ideally, your housing payments which include your mortgage, taxes, maintenance, and similar costs should not exceed 28 percent of your gross monthly income. If they do, you may want to rethink buying before selling.
Speak with a real estate agent about selling your home and get her honest opinion about how long it should take to sell your home. This can often be estimated by looking at data from other properties that recently sold in your area. If you cannot afford to own two homes at once, consider other options. Some homeowners will rent out their old home to help pay for the cost of a second mortgage. However, there are some downsides to being a landlord. You will need to consider if you are willing to deal with tenants and the possible maintenance involved in being a landlord.
Learn More About Gap Financing
Many homeowners who choose to buy before they sell turn to bridge loans to help fill the gap between the sales price of the new home and the new mortgage. These short-term loans are often taken out for a period of between 2 weeks and 3 years. With a bridge loan, homeowners are able to immediately put their home on the market and buy a new home without restrictions. For more information about bridge loans or gap financing, contact an agent at Fairfax Mortgage Investments.