Should You Buy First or Sell First?

With record low interest rates and prices still near the bottom (despite recent consistent gains), this is a great time for current homeowners to consider trading up to a larger house. The extreme inventory shortage makes this a particularly opportune time to sell if you have built up equity that can be put towards a down payment on your next home. However, before diving into the market, trade up buyers need to carefully consider this question: should I buy first or sell first?

To answer this question, you need to first talk with a lender and figure out what your current options are. Most buyers need to use the profits from the sale of their current house to go towards the down payment of their new house. In the past, buyers were able to write offers that were contingent upon the sale of their current home – which meant that they could put an offer in on a house that allowed them to hold the closing of that sale until they sold their current home. Unfortunately, with inventory low and large numbers of qualified buyers ready to purchase, today’s sellers are extremely unlikely to agree to a sale that requires them to wait for the sale of the buyer’s current home. If you are not in the financial position to buy without selling, your best option now is to put your home on the market and plan to possibly use interim housing in between the sale of your current house and the purchase of your new home.

If you are not dependent on the sale of your current home to fund the purchase of your next house, then buying first is probably a more convenient option. This scenario would allow you to move your belongings into your new house before putting your old house on the market, which can make it easier to advertise and sell. Remember that with this option, you’ll need to be able to prove that you can carry both mortgages simultaneously in order to qualify for the loan on your new home. You also need to feel confident that your old home will bring in the sale price that you are expecting – selling first can help you to have a better understanding of exactly what you can afford in a new home.

The final option that many buyers explore is keeping their current home as an investment property that they will rent out. What buyers need to know if they are planning on going this route is that most lenders will require that you have at least 30% equity in your home in order to allow rental income to count towards your approval for a loan on a new house.