Mortgage Articles
What happens when you buy a house before you sell
Part 2

Should you buy your new house first or sell first?

Note: This is the second part of a 2 part article:
Should you buy your new house first or sell first - part 1

So... What happens when you buy a house before you sell

A lot of people – I wonder why – find a house and make an offer on it before they put their present house on the market.

The main advantage of this path, is that you can look for your new home when you want, leisurely, without feeling any pressure.

Like I said earlier, this path carries the risk that what you offer is less, and in some circumstances, what you offer – if it’s conditional to the sale of your house – is totally unacceptable to the vendor.

By going this path, there is also the possibility that you might not have enough time find a new house.

Finally, and Michel Duguay recommends this to the home sellers, some sellers put a contract clause that states that if someone else comes and makes an unconditional offer (that person has the cash), you are then given 4 or 5 days to come up with the cash yourself. If you can’t, you loose that house.

Buy or sell first?

It’s an important decision. So be cautious and thoughtful in making it. You must assess your financial picture honestly, as well as your ability to handle the stress that will go along with any decision you make. Be aware of the downside of buying before placing your own house on the market, because the worst case scenario can be extremely costly and difficult to bear.

Of course, if you have the cash… Just look and buy!

The chicken or the egg question

For homeowners aiming to sell their house and buy another one, it’s the classic, which came first, the chicken or the egg, question – buy or sell first?

If you sell your house first, you may find yourself under a tight deadline to find another house, or be forced into temporary quarters.

If you buy a house first, you may be saddled with two mortgage payments for at least a couple months. You may need the money from the sale of your original home in order to pre-qualify for a loan for your new home. You may be facing a job relocation and need to sell quickly.

There are many variables involved; there is no universal correct answer. It basically comes down to your specific circumstances.

Michel says there is generally less pressure when you sell first. And I agree.

It really comes down to a question of risk. It’s whether you want the risk of owning two houses, and two mortgages, or possibly none at all.

Michel says that if you have the money to make two mortgage payments, the pressure will be off. But if you need to sell your house in order to qualify for a mortgage loan, then you have no choice – you will have to sell first.

“You can write conditional contracts, but if you really want the house, you’ll probably pay a premium – that’s if the seller will even entertain a conditional offer”.

And if you go ahead with a conditional offer, then you may end up bargaining less for the house you’re selling in an effort to get it sold quickly.

Michel says that for most people, the stress level is lower when you sell first.

“You have time to get pre-approved for your mortgage and see all the possible housing options in the price range you’d like to buy”.

When the house you are selling is in contract, Michel suggests that you pick the three best homes of those you’ve viewed and make an offer on the one that best meets your needs.

“The absolute worst that can happen is the right home is not available and you might end up in a short-term rental with the cash in your pocket and pre-approved financing for the balance you need. So you look like a cash buyer when you make an offer on the home you finally want.”

Not only that, it’s a win situation because you are selling and buying in the same real estate market.

But brisk selling conditions in some parts of the country require more aggressive tactics.

Usually a strong market dictates that homebuyers focus on buying first, and selling later.

Normally a real estate agent will advise his buyers to sell their house first and buy second ... However with a faster moving market, some real estate agents are advising many of their buyer clients to obtain a mortgage commitment that is not contingent upon selling their existing house.

Even in good real estate markets, sales frequently drag on much longer than you can expect. Selling in a weak market usually compounds the problem.

As a rule, homeowners tend to overestimate their house’s resale value and underestimate the length of the selling process – a fiscally deadly dead end.

Selling first eliminates financial risk – no double mortgages and double payments for property taxes and insurance payments. And no worrying about how you will come up with a down payment.

Selling your house first isn’t the perfect solution. Some of the problems that may come up include:

• Being forced out of your home before you have a new one available. Where will you live? Where will your kids go to school?

• Being forced to move twice. Do you want to go through all that trouble? Where will you store all your furniture while you live with family and friends or rent an apartment – which can also be not so easy to find?

• Not being able to find a house that you really you like. How long are you willing to live in temporary quarters, with family or friend, until you find a suitable house?

Whichever way you go, it always seems to work out, at least in Michel Duguay’s experience.

“I’ve been in the business for many years, and I never had anyone out on the street and the vast majority of my clients who make double moves are usually those who decided to build a new home or buy a house on plans. So they had to have their house sold first anyway.”

Part 1: Buy your new house first or sell first?

 


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