Selling Your Home and Buying Another

Wondering how to buy and sell simultaneously?

 Unless you’re buying your first home (or looking to buy an investment or vacation property), you’re probably wondering, “Do I buy first, or do I sell first?” Trying to buy and sell at the same time will always make matters more complicated. Let’s take a look at some strategies to help you tackle this situation for the best possible outcome while minimizing stress along the way.

Assessing the Market

 Assess the current market conditions. Is it a buyer’s market or a seller’s market? In a buyer’s market, there are lots of homes available and prices will be lower. In a seller’s market (like we are facing at present), there is competition among buyers as properties move off the market quickly, and at higher prices. Your strategy for buying and selling should take into consideration the current market conditions as well as your personal and financial situation.

Strategies in a Buyer’s Market

 In a buyer’s market, selling your current home first is your best option. If you sell first, you can avoid owning two homes at once and being responsible for both mortgages while you wait for your home to sell. You will also know exactly how much you can afford as the sale proceeds are realized before you make an offer on a new home. This allows you to avoid over-extending yourself financially on your purchase. The only problem here is that if your closing dates don’t line up, you will need temporary accommodation during the gap period.

Strategies in a Seller’s Market

 In a seller’s market, you may want to consider buying a new home first. It is safe to assume that your home will sell faster under these market conditions, but there will be limited inventory for you to choose from. The advantage here would be feeling less pressure to decide on a home within a certain time frame. You don’t want to feel like you rushed and compromised so much that you aren’t truly happy with what you bought. The caveat with this strategy is that you may need some help coming up with the down payment on your new home, either from family, friends, or in the form of a bridge loan.

Taking Advantage of Bridge Financing

 If you can’t make the closing dates on the two properties dovetail, you might want to consider bridge financing. Bridge financing is a short-term loan designed to bridge the gap between closing dates by temporarily supplying the down payment on your new home. This type of loan can also be used if you wish to own both homes for a short period to complete renovations on your new home prior to moving in. There are a few catches to bridge loans, however. First, you must have an unconditional Contract of Purchase and Sale for your current home in order to qualify. Secondly, the amount provided is limited to the amount of the down payment you need, and this number cannot exceed the equity you have in your current home. Finally, bridge loans can be far more expensive than regular mortgage or home equity loans in both up-front costs and interest rates. Talk to your mortgage broker or lender about bridge financing and run the numbers before deciding if this makes financial sense for you.

Additional Considerations

 I would always recommend selling your current home before buying a new home, where possible. This is the more logical order and it’s a much safer bet financially. If you sell first, you don’t run the risk of purchasing above what you can afford, or end up trying to juggle mortgage payments for two homes at once. An added layer of security is to make the sale of your home conditional upon purchasing a new home. This can also work the other way around if you choose to buy first. Ask your Realtor® to write this clause into the Contract of Purchase and Sale.