For example, let’s assume the old
house is worth $1,000,000 and
there is currently a 1st mortgage
of $200,000. The homeowner
desires to purchase a new home
for $1,400,000 and has $100,000
in the bank that can be used for a
down payment. We will look at two
scenarios; the first is where the
homeowner sells the current
house, rents for a period of time,
and then purchases a new home.
The second scenario is where the
Does it Makes Sense to Buy a New
House before Selling the Old One?
In a rising
market, the
earlier the
purchase of the
more expensive
new house and
the delay of the
sale of the old
will increase the
net equity to the
homeowner more
than the costs
associated with
carrying two
mortgages.
homeowner borrows the money in
order to secure the new home
while owning the old home.
Obviously, there are many moving targets with the both
scenarios, such as how much it will cost to rent a place [in
the event of selling the old house first] as well as how long
it takes to identify and close on the new house, storage
costs for belongings, the cost of obtaining a private loan,
and the appreciation assumptions for both houses, just to
name a few.
Opportunity Cost of Not Using
Private Capital to Purchase Target Home
Scenario:
Homeowner owns a house worth $1,000,000
Current 1st mortgage $(200,000)
Equity $800,000
Desire to purchase home worth $1,400,000
Available cash in bank $100,000