The path to purchasing a new home is laden with crucial decisions that can have a significant impact on your financial future. One such decision is whether to sell your current home before buying a new one.
While some homeowners might be tempted to buy first, hoping to time the transactions perfectly, there are several compelling reasons to sell before buying. Here are the top three reasons why selling first
could be the better strategy.
1. Avoid Buying High and Selling Low
In an ideal world, you'd want to sell high and buy low, maximizing your return on investment. However, real estate markets can be unpredictable, and if you buy before you sell, you could end up in a situation where you buy your new home at a peak market price and then sell your old home when the market has dipped.
Waiting to sell your current home until after you've bought a new one could put you at risk of losing money if market conditions change. Selling your home first allows you to understand precisely how much you have made from the sale and what you can afford to spend on your next home. It eliminates the risk of being caught in a falling market where you might sell for less than expected.
2. Know What You Can Afford and Qualify for
When you sell your home before buying a new one, you have a clear picture of your financial capacity. You know exactly how much you've earned from your home's sale, and therefore, how much you can
reasonably spend on your new home. This can prevent you from overextending yourself financially and make your home search more efficient, as you'll only be looking at homes within your budget.
Additionally, if you're planning to get a mortgage for your next home, having your previous home sold and its mortgage paid off can improve your debt-to-income ratio. Lenders often look favorably on borrowers who have less outstanding debt, which can increase your chances of securing a better mortgage rate.
Moreover, when you place an offer on a property 'subject to sale' without having your current home on the market, sellers are likely to demand a premium price. They are essentially taking a risk by committing their property to your offer while you are still trying to sell your existing home, a process that could potentially extend over a longer period of timent home.
3. Experience Less Stress and Smoother Transitions
Juggling the sale of one home while buying another can be a stressful process. You may find yourself in a tricky position if your old home doesn't sell as quickly as you expected or if there are unexpected issues with your new home purchase.
Opting to sell first can significantly alleviate these pressures. After receiving an offer for your current home, you can negotiate with a condition of finding appropriate accommodation. Once the offer is
accepted, your attention can be fully dedicated to locating your next home, with the advantage of setting preferred dates and effectively negotiating to align the completion dates with your sale. This strategy often proves to be less taxing than attempting to synchronize two major transactions simultaneously, thus freeing you from being overly reliant on the seller's terms and conditions.
The process of selling and buying homes can be complex and filled with challenges. However, by selling your home before buying a new one, you can protect yourself from potential market downturns, have a clear understanding of your financial capacity, and experience a less stressful transition. While every situation is unique and should be evaluated on its own merits, these reasons make a compelling case for
selling before buying. Consulting with a trusted real estate professional such as myself can further help you determine the best strategy for your specific circumstances.