Buying a house before selling the current home

Buying a your next home before you sell the current one that you are living in creates some tough decisions.  Many of them should be made in advance to reduce the anxiety and allow time to prepare for the issues that may arise.

If there was a “right” way, we would all know just what to do.  But, in reality, the decision comes down to more personal choice and the tolerance for risk.  While there is risk, of course, in any decision, it comes down to what kind of risk.

Buying first

Searching for a new home can be fun if there isn’t a deadline.  Knowing there isn’t a closing pending on a current home means having the luxury of time.  With that time, waiting for right house to come on the market is relaxing.  It also means that if the deal on the right house falls through, it is easy to start searching again, instead of perhaps suffering a financial hardship or being forced to accept a deal that turned sour.

There is a downside to finding the right house and still owning the current home.  While the closing can be put off for a while to enable enough time to sell the current house, it can’t be placed on hold for long.  The seller’s will want action sooner or later, since they may be in the same situation.  Then, if the closing goes through, there are now two mortgages to keep up on.  It not only might be impossible to make two mortgage payments, a lender might not be willing to take the risk.

The buyer can protect themselves by placing a contingency on the purchase with the sale of the current home.  But, that contingency will have a drop dead date when the buyers will place the home back on the market.  Additionally, in a seller’s market when there are going to be multiple offers, seller’s will look closely at all contingencies and select the one with the least conditions.

Selling First

If the current home is sold first, besides removing the risk of two mortgages, the amount of money the sale produced will be certain.  When buying first, the down payment money comes out of savings with plans to replace the money on the sale of the current home.  But, if it the sale of the current home doesn’t produce enough cash, it may create an avoidable financial hardship.

The downside is the stress of finding a new home before closing on the new home.  If the tolerance for risk is low, deals may be accepted that are not good.

Plan in advance

Ask many questions of yourself and your family when you decide to move.  If the closing dates of the two homes don’t come at the same time, is the family willing to move in with someone else or find a short term rental.  Will it be possible, given income to debt ratios and credit scores, to get bridge financing to help with the cost of owning two homes?

The best advice is to talk with a couple of professionals in advance.  Since an application for a mortgage is going to be made, discuss your financial situation with a lender.  Let the lender knowing what is being planned.  The lender can then prepare a couple of options with bottom line costs.

Also, talk with a real estate agent about current market conditions.  Knowing how fast homes are moving in your market is not a guaranteed about your home but will give you some idea of what to expect.  The agent will also develop a listing price to help understand the financial situation.  

In the end, while it is going to cause stress no matter the choice, enjoy the process.  Finding a new home can provide a great change and a lot of hope for the future.

Morris Hagerman is a local real estate agent with Real Estate One in Royal Oak, Michigan.  He serves Berkley and the other Woodward 5 communities, including Ferndale, Pleasant Ridge, Royal Oak and Huntington Woods.  Hagerman is also a member of the Berkley/Huntington Woods Area Chamber of Commerce.  You can contact him by phone at 248-854-8440, email at morrishagermanproperties@gmail.com or visit his web page.