So, you’ve made the big decision to sell your home, secure a new mortgage, and move into a new home in your dream neighbourhood. It’s an exciting time but can also be stressful. A common question I get asked is whether it makes more sense to buy a home first or sell the one you’re living in given the current real estate market. Deciding which path to take should be a well-thought-out process, where you take into consideration factors such as your housing preferences, the current real estate market conditions, your financial situation, and your risk tolerance.
Many homeowners dream of seamlessly selling their current home, buying a new one, and transitioning from one to the other in one smooth move. However, this ideal scenario isn’t always achievable, especially if the parties involved can’t align with their desired closing dates.
As an experienced mortgage broker and a financial advisor in the Barrie area, I can help you look over all the details and figure out which is the best path to take. Both options have advantages and disadvantages so let’s dive a little deeper into the conversation.
Why Sell Your Home Before You Buy A New One?
While the idea of selling your home before embarking on the search for a new one may offer a sense of security, it also brings with it the anxiety of finding a new place to live within a given time frame. If you sell your home first these are a few things to consider:
- It’s Easier To Determine Your Exact Budget: A firm sale price is the true measure of your home’s market value. This figure will provide a clear understanding of your budget for your new property.
- You’ll Relieve Stress and Financial Strain: While it’s a worst-case scenario, your home not selling before your new home’s possession date can cause significant problems. Securing your financing could become an issue because failing to sell your current home in time could jeopardize your mortgage approval.
- You Can Avoid Bridge Financing: Matching closing dates for your old and new homes isn’t always possible. For instance, you may gain possession of your new home on October 1 but not close on your current property until November 30. Bridge financing means you will be temporarily paying two mortgages.
Why Buy A Home Before You Sell?
On the flip side, opting to purchase a new home first may come with the added pressure of swiftly selling your existing property to avoid the potential burden of owning two homes at once. Which also means carrying two mortgages at once. In such cases, you may find yourself in a situation where you have to move out of your current home without moving into your new one, necessitating temporary accommodations for a hopefully short duration of time. Alternatively, you might end up owning two properties until the buyers of your current home take possession. Before you put that for sale sign up, think about this:
- Your Selection May Be Limited: In a competitive market with limited inventory, highly sought-after properties tend to sell rapidly. Opting to sell your current home first with a short closing period carries the risk that your ideal home may no longer be available within your buying timeline.
- You Might Lose Out On Your Interest Rate: Mortgage pre-approvals, including locked-in interest rates, typically remain valid for a specific period, usually around 90 days. If it takes longer than expected to buy and sell, the interest rates you initially counted on may no longer be applicable.
- There’s Time for A Few Fix-Ups: Perhaps your dream home is a fixer-upper or you’d like to replace floors and paint the walls. Choosing to buy before selling allows you the opportunity to complete these renovations while staying in your current home.
Before You Decide To Buy Or Sell First, Ask Yourself These Questions Specifically…
- Do You Have Alternative Living Arrangements?
Is there a friend or family member you can move in with if you sell first but can’t find that property you were dreaming of? Will they take you, your belongings and your pets or will you need to make other arrangements?
- What’s The Best Thing To Do With The Money From Your Sale?
If you close on your sale before you buy a new home, where will you invest your money while you search for your next home? Gambling it on a short-term, high-risk investment to try and make a quick buck is not the best strategy. You need to find a nice, safe place where you’re not likely to lose money in a volatile stock market. Talk to a financial advisor, like me, to weigh your options.
- Will you be facing mortgage penalties?
Review your current mortgage terms. Many mortgages can be ported, allowing you to transfer the outstanding balance to your new property. However, watch for time limits; some mortgages are only portable for 90 days. If you don’t close on your new property within this timeframe, you could face significant penalties.
- What is the current state of the real estate markets you are buying and selling in?
Real estate markets change over time and it’s impossible to predict what will happen. In an ideal world, we’d all sell in a hot market and buy in a lower market, but rarely does it ever play out that way. Consulting with a mortgage broker can help you understand what’s happening now while planning the best course of action for you.
Consult With A Mortgage Broker Before You Finalize Your Decision
Still not sure? A lot depends on the real estate market. Moving from a hot market to a cooler one? Buying first may be the answer. If you’re looking at buying a house in a hot market like Barrie, you should probably sell first.
The best decision is to talk with a mortgage expert who has your best interests at heart so that you fully understand your options, the pros, and the cons. Let’s put our heads together and find a solution that makes sense for you. Call me, Darren Robinson, at 705-315-0516 for support and advice. Or book an appointment online so that we can discuss the best option for you and what your mortgage alternatives are.