If you’ve got to purchase a new home before you sell your old, the first thing you need to do is know the market. Before you start seriously searching for a new home, or put your current home on the market, make sure you have a solid understanding of the housing market in your area. Is the market weighted toward buyers or sellers?
Only then will you be able to fully strategize. The best plan of action may differ depending on exactly who has the power. Similarly, make sure to hire an appraiser and price your old home fairly. Now isn’t the time to get delusional. If you can get your home sold faster by lowering it a few thousand dollars, do so. It’s cheaper in the long run than paying two mortgages for two months.
So, should you buy, then sell? Or should you sell, then buy? Both have their own advantages, and both have their own pitfalls. Selling your home first makes getting a mortgage tons easier. However, you’ll also have to find somewhere to live during that time. If you buy first, it’ll surely be easier to move, but your DTI (debt to income ratio) is going to suffer. This means you’ll have a harder time getting a mortgage. Plus, you’re going to be paying for two mortgages.
Whichever option you choose, make sure you’re prepared to accept the consequences: having to store your stuff and rent temporarily, or undergoing the financial impact of double mortgages.
When buying and selling a home at the same time, there are so many external circumstances. Remember: You’re not the only party in this equation. For every seller there’s a buyer, for every buyer a seller. While things might appear to be working smoothly when viewing your grand plan from above, that doesn’t take into account the variabilities of other people. Your buyers might have difficulty securing their mortgage; or, your house inspector may bring up issues that need to be fixed before you can even move in.
So even if you’ve planned to sell your home first and are prepared to rent while buying, know that even the best plans can go South, and you still might end up having to pay two mortgages. Even if it seems extremely unlikely, and your plan seems fool-proof, you should still prepare for the worst. If you are going to be purchasing first, talk to your real estate agent about ways to go about minimizing your financial burden and risk. Watch: How to Declutter When Selling Your House.
Buyers can request that their new home purchase be dependent on the successful sale of their old home. If you’re looking in a competitive market, this may not be a good option; however, if the seller of your intended home has had difficulty attracting interest, this may be a good deal for all parties involved—assuming you can convince them that your home will sell quickly.
If you’ve found the perfect home, and the timing is right, that’s wonderful. But don’t feel like you have to compromise on things that are important to you just because you need to find a home. All the same, be sure that you do not accept a low bid just because your finances are being drained by 2 mortgages. Rent a temporary apartment so that you’re not as likely to cave.
Selling and buying a house at the same time can absolutely drive you insane. But, as long as you prepare for the worst, and are armed with plans to enact for possible scenarios, you’ll relieve some of the stress. Further reading: What Deductions Can I Claim on My Taxes for Selling My House