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The "For Sale" sign caught the buyer’s attention. Behind it stood the home of their dreams. It was everything they had imagined: cedar siding with brick trim, big windows and skylights, a country porch, a beautifully landscaped front yard and a fenced back yard. The buyerss now faced a dilemma debated by the vast majority of repeat homebuyers? Do I buy first or sell first?
The ideal scenario would be to buy and sell simultaneously, but such timing is never guaranteed. Most homebuyers will need to decide between two options: buy a home and then sell their current home or sell their current home and then look for a new home. If you’re contemplating a move, consider the pros and cons of each strategy.
Buying First
Buying a home first can have its advantages, especially if the home is that special find that may happen only once in a lifetime. A small percentage of buyers will have sufficient independent funds available or be able to qualify to purchase a new home without selling their present home. But most buyers will need the equity from their present property to use as a down payment on the new home. They will usually be most comfortable making an offer on the new home if they already have a buyer and a firm closing date for their present home. An offer contingent on closing the sale of your present home is much more appealing to a seller than an offer which is contingent on selling a property for which you do not yet have a buyer.
On the downside, you could end up with two houses. To pursue a buy-first scenario, many people use their home equity line of credit as a "bridge" loan to provide funds for the new down payment. However, to qualify, homeowners generally need a sizeable income. Even if you qualify, the stress of owing on three mortgages (the old mortgage, the bridge loan and the new home mortgage) might force you to sell your home at a price lower than you hoped. Keep in mind that market conditions change, so you don’t really know how much you’ll get for your present home until it’s sold. If your home doesn’t sell by the time you are ready to close your new purchase, you might want to consider renting it if you can still qualify for the loan.
Selling First
The second scenario calls for selling your home first. This way you know what funds you have available to go towards a new home; you avoid carrying three mortgages; and you won’t require a home-sale contingency. It is possible your buyers may agree to a long closing or a rent-back option so you can stay in the house while you look around to find the house that’s just right for you.
However, there are some disadvantages to selling your home first. You may feel pressure to find something quickly and may agree to settle for a less-than-ideal home. You may require interim housing and need to stay with family or friends for an extended period or find a short-term rental. If you decide to rent, it may be difficult to find suitable temporary housing, especially if you have pets. In either case, furniture would probably have to be moved twice and possibly stored for awhile. If you are moving out of the school district, you may need to make special arrangements to allow children to continue attending the same school.
The Choice
Buy first or sell first. How can the you choose between the options? First, assess your financial condition. Is it healthy enough to withstand a buy-first scenario? Do you have the resources to manage three mortgages and are you willing to take on the potential responsibility of being a landlord with renters? If you sell first, where will you live until you find your new home? How well is your family likely to adjust to interim accommodations?
Often it is not easy to choose between these options. Fortunately you don’t have to do it alone. Select a real estate professional you like and trust and ask for their expert assistance in deciding how to ensure as smooth a transition as possible for you and your family.
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