Buy first or sell first? If you currently own a home and you’re looking to move, you may be asking this common home ownership question.
Upsizing? Downsizing? Changing neighbourhoods? Whatever your reason to move, if you’re selling your current home and looking to buy a new one, you’ve got some coordinating and planning ahead of you. Ideally, you can perfectly align the sale and purchase so they occur simultaneously – but this isn’t always possible. Here are four steps to consider as you navigate a purchase, sale, and move:
1. Evaluate the housing market
Are you in the midst of a buyer’s market or seller’s market?
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A buyer’s market means there are more homes on the market than there are buyers. In this type of market, buyers have the luxury of spending more time looking for homes and have more leverage when it comes to negotiating. If you’re selling in a buyer’s market, it could take a little longer to sell your home – so you may want to hold off on making an offer on a new place to avoid the stress of not knowing when you’ll sell, and for how much. |
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A seller’s market means there are more buyers than there are homes for sale. In this market, your home could sell quickly, and potentially for more than you listed it for. The flipside is that when you’re buying in this environment, you may need to act quickly – and you’ll likely have less flexibility to include conditions or choose your preferred closing date within your offer. |
Be sure to talk to your realtor to understand the kind of market you’re working within, and to determine a buy and sell strategy that works best for you.
2. Consider your mortgage options
One of the main advantages of selling your home before you buy is that you’ll have an easier time getting a mortgage. You’ll be able to put the money from the sale of your home towards your next purchase and know exactly how much you have to work with.
If you buy before you sell, you’ll need to make some assumptions when it comes to your sale price, closing costs, and down payment, which makes getting a mortgage a little tricker – but not impossible.
If you have a mortgage on your home today – and will need one for your next property – you’ll need to check the options available on your current mortgage that can simplify the mortgage process, including:
| Porting your mortgage, which involves moving your existing mortgage to your new home. | Increased ports, when you want to keep your mortgage but need additional funding for your next home purchase. |
| Decreased ports, when you don’t need as large a mortgage – you can take whatever portion of your existing mortgage you need. | Breaking your mortgage and getting a new one, when it doesn’t make sense to take your mortgage with you. |
Speak with your mortgage lender first to see if these options are available with your current mortgage. Visit MCAP’s Buying Your Next Home advice page for more information about your mortgage options.
3. Plan out your schedule
Ideally, you will want to coordinate your closing dates for your current and new home to best suit your circumstances. For example, if you have some renovations to take on in the new home, you’ll want to close there first, so you have some time to get work done in advance of your move. If your new home is move-in-ready, you’ll likely want to align your dates so you can move out of one space and into the next without taking on extra costs or finding in-between accommodations.
Keep in mind, if there is a lag time between closing dates and your new property closes before you get the proceeds from your current property, you can speak with your lender about a bridge loan that can “bridge” the financing gap with a temporary mortgage.
4. Have a backup plan
Whether you buy or sell first, you’ll want to have contingencies in place to protect your financial interests. For example, if you’re putting an offer on a new home before you sell your current property, it’s wise to add a condition in your offer stating that your offer only stands if your current home sells within a specified time period.
If you sell your current home before you find your new place, make sure you find a short-term rental so you have a place to go until you’re ready to move.
Finally, your plan should consider backup funding, in case there is any issue with accessing the proceeds of your home’s sale for the purchase of your new property. Whether it’s savings, a home equity line of credit, or a bridge loan, it’s a good idea to speak with your lender about financial contingencies before there’s a crisis.
Ready to buy your next home?
Visit MCAP’s Buying Your Next Home advice page for more information and next steps.
