What Comes First,
Do You Buy or Sell First When You’re Ready to Move?
By: Michele Lerner
Homeowners who
decide they’re
ready to become
move-up buyers
face a chickenor-egg dilemma:
Should they sell
their current home
first and then buy
another, or buy
a new one and
then sell? The
answer depends
on several factors,
including your
local market
conditions, your
financing options
and your feelings
about potentially
moving twice
if you sell your
home before your
next residence is
available.
Market Conditions
Before you blithely assume that your real estate market is
a buyer’s market or a seller’s market, you need to realize
that you must be very specific about the market for your
particular neighborhood, the style of home you own, and
the price range for your property. In addition, you need
to assess the availability of homes that meet your criteria.
You’ll need to work with a knowledgeable, professional
REALTOR® who can talk to you about how quickly homes
that are similar to yours are selling and for how much. On
the buying side, you should do some preview shopping to
get an idea of what you want and how easy it is to find it. For
example, if you must live in a particular, popular
school district, you may want to consider buying a home
first so that you’re sure you have a place
you want.
Financial Options
In an ideal world, everyone would have the funds to pay
cash for their next home, but the reality is that most people
need the equity from the sale of their current home for the
down payment on the next house. One option is to sell your
home and then negotiate to rent it back from your buyers,
but remember THAT you’ll need to pay them for the rental.
The
Chicken
4 | Homes, Business & Land
•
South Central Oregon
• May 2014
Also, lenders will
limit the rent-back
term to a maximum
of 60 days because a
rental lasting longer
than that would
be considered an
investment property.
Alternatively, you
can temporarily live
with friends or family
or in a short-term
rental while you’re
between homes. In that
case, you might need to
pay for a storage facility
for your possessions.
A drawback to
selling your home first
is that you may be
unable to find a home
to buy, or you may feel
rushed
into taking a place that
doesn’t meet your
expectations.
If you can qualify for the mortgage loan on both your current
home and the next home, you can access the equity in your
current home with a line of credit. You’ll need to take out the
line of credit before you put your home on the market and
then you can pay it back
at settlement.
You may also be able to borrow money for a down
payment from relatives that you can repay after your
home sells.
Some lenders also offer bridge loans for transitioning
homeowners as long as they have excellent credit and
sufficient equity in their current home. A lender can help you
evaluate your options.
Risk Aversion and a Plan B
You’ll have to ask yourself what scares you most:
selling first and having nowhere to live or buying
first and being stuck with two mortgage payments.
The answer depends on your finances and your local
market, but in either case you should have a backup plan to deal with the worst case scenario – either
another source of income for those mortgage payments
or an identified place to live for a few weeks or months
while you shop for a home.
Or the
Egg?