When homeowners are ready to move on from their current home, they face a big question: should they first become buyers or sellers?
While no two situations are the same, in general it can make more sense to sell your home first. That being said, there are some specific situations that can help make this decision a no brainer.
1. The Risk of Having Two Mortgages
Ideally, homeowners would find themselves in a perfectly played out situation where everything comes together. When you are ready to move on, the stars will align and you would sell your house just as you were closing on your new house. Nice and simple.
Unfortunately, nice and simple is not always the way the process unfolds. This is why sellers need to be prepared for worst-case scenarios. For example, consider what would happen if you bought your new home before selling, but then find your situation changes and it is beyond your control. Say the market changes and your old house will not sell. Or maybe financial issues hit your employer, or an unexpected maintenance issue arises at one of the homes. If you do not have a plan (or the finances) in place, you will be serious trouble.
Selling your home first can help offset some of this risk.
2. You Are Not a Qualified Mortgage Candidate
Buying an additional home on top of the one you already own means that homeowners will most likely need a second mortgage. But be aware that when you apply, the lender will not take into consideration your plans to sell your current home. This can hurt many applications.
As when you applied for your first mortgage, lenders will look closely at your debt-to-income ratio. DTI is looked at in real time, so your current mortgage will be included with this calculation. In order to be approved for another mortgage, your monthly debt payments should total less than about 36% of your monthly gross income.
Homeowners who do not meet this criteria may have an easier time selling your home before buying a new one.
3. The Market is Competitive
There are markets where buyers are practically fighting each other to secure a property. And while this can bring good news for sellers, it might mean that your buying experience will be a little less smooth.
When buying in a competitive market, you need to have your offer be as strong as possible. That means the fewer contingencies the better. So if you state that you first need to sell your house before buying this one, your offer could get pushed right out the door.
When you sell your home first, you are able to avoid such contingencies. This can help with the overall strength of your offer, getting you into a new home as soon as possible.
When homeowners decide to become sellers before buyers you reduce the financial risk involved with carrying multiple mortgages. If you have the cash and savings on hand, then it is not as risky of a move. But if you are going to be stretched thin, understand that all it will take is one problem to pop up at either home.
