Buy or Sell First? Timing the Purchase of Your Home
In an ideal world, you would put your current home on the market while looking for a new one. You'd find the home of your dreams at about the same time your existing home is sold. The closing on your existing home would be scheduled after the closing date on your new home purchase, simplifying the financial transactions and giving you time to pack and move.
In reality, things may not always work that smoothly.
If you're depending on the equity in your old home to buy a new one but your old home doesn't sell in time, you may end up backing out of the new home purchase. That can cost you your deposit and may even result in legal fees. If you can afford to cover both mortgages, it may take months before the old one is sold, costing you thousands of dollars in loan payments, taxes and insurance on a home you no longer live in.
On the other hand, if you wait until your home is sold before looking, you may not find a new home before closing on the old one. You could find yourself moving twice – once into temporary housing and again when you find your new home. That can disrupt your family and add thousands of dollars in rent and moving expenses.
If you find yourself in a timing bind, consider one of these possibilities:
Contingency clause. You may include a contingency clause in your real estate contract that limits your responsibility for buying the new home by making the sale contingent on the sale of your current home by a specified date. Pro: If your old home is not sold, you are not tied into a contract for the new home. Con: Many sellers may not accept a contingency if they think they can get a contract from another buyer with no strings attached.
Bridge loan. This is a loan that "bridges" the time between when you close on a new home and your old home is sold. Pro: A bridge loan can provide the necessary financing to cover a new mortgage while you are still paying the old one, giving you the flexibility to time your new home purchase. Con: There are fees and expenses associated with a bridge loan, in addition to the interest payments.
Contact SCCU to discuss the current housing market and help "run the numbers" to see what your options are for timing the sale and purchase of a home.