By: Steve Gouveia and Mike Thompson
When buying a new home, timing is always key. And, if you are attempting to sell your current home as you’re searching for a new one, timing can become even more important. To determine if you should buy before you sell or sell before you buy, you need to take a closer look at your finances. Our team is here to help make the process as seamless as possible. Here’s what you need to know.
Buying Before Selling
Oftentimes people need to pack up their belongings and relocate due to a new job or growing family—or their dream home just came on the market. Whatever the case may be, many buyers prefer to buy a new home before moving out of their current residence, so that they don’t have to move twice. This way, they can avoid the inconvenience of renting in between moves and/or spending money for local hotel stays and short-term storage facilities.
Moving into a new home before selling your current home is feasible, but it requires some financial flexibility. Our philosophy is to meet with you in person to evaluate your debt-to-income ratio and to assess your monetary standing. Here are a few questions we typically ask to get a better understanding of your financials:
- Do you have the income to cover the new mortgage payment and the payment on your existing home?
- Do you need the equity from your current home as a down payment on the new home?
- How much equity do you have in your current home?
- How much cash do you have on hand for the down payment on the new property?
Knowing the answers to these questions is crucial in determining if you’ll be able to afford and qualify for two mortgages.
Selling Before Buying
Some buyers don’t have enough equity or income to pay for two mortgages at the same time. Or, they don’t have enough cash on hand to cover the down payment. In other words, this type of buyer needs the equity from their current home to manage the cost of their new property. If that’s the case (and for many people it is), there are a few options to consider. Here are a few scenarios we can explore with you:
- Making a contingency offer where your current home must sell before you can buy a new home. Therefore, you wouldn’t have to qualify for carrying two mortgages.
- Requesting an extended closing past the standard 30-45 days. This would give you enough time to sell your current home and use your home equity to buy another house.
- Using a short-term loan from your retirement or investments for the down payment. You would pay this loan off later with the proceeds from the sale of your existing home.
- Renting out your first home, which would allow you to cover the mortgage costs while delaying the need to sell at the same time as you’re buying.
What Should I Do Next?
We highly suggest reaching out to an experienced lender to receive the best advice for your scenario (before you call a realtor). Working with the right team can make all the difference throughout this process. We (Mike & Steve) are a rare and dynamic duo that has worked together for over 15 years as loan officers. Most importantly, we value our relationships and prefer to be in the field side-by-side with our clients.
We encourage you to contact us today with any questions you may have. Best of luck!